For many organisations in the UK, captive insurance has long been strategically appealing but in practice, it has often been difficult to justify. While captives can offer greater control over risk financing, improved visibility of loss drivers and more tailored coverage, the UK regulatory environment has historically imposed high barriers to entry. As a result, most UK-owned captives have been established outside the country, limiting the growth of captive insurance UK as a domestic market and despite the UK’s position as a leading global insurance market. That position is changing with the UK Government announcing last year, plans to introduce a new captive insurance regime designed to be more proportionate, more flexible and more competitive. For organisations asking “what is a captive insurance company?” the simplest definition is a group-owned insurer established to underwrite the risks of its parent and affiliated entities. To understand the significance of these reforms, it helps to look at how the previous regime operated, what the new framework is intended to change, and when those changes are expected to take effect. The Restrictive Nature of the Old Regime Historically, captives in the UK were regulated largely under the same framework as commercial insurers. In effect, captive insurance regulations were aligned more closely with open-market insurers than with group-owned risk financing vehicles. In practice, this meant: Lengthy and complex authorisation processes, with limited ability to tailor the programme for captive structures. Capital requirements that often mirrored those required of insurers, regardless of the captive’s limited risk profile. And ongoing reporting and supervisory obligations designed for open-market insurers rather than group-owned vehicles. For many organisations, particularly those in the mid-market, these factors made UK captive formation difficult to justify in commercial terms. Even where the strategic case for a captive existed, the cost, complexity and uncertainty of the regulatory process often outweighed the perceived benefits, pushing companies towards establishing offshore domiciles with bespoke captive regimes. A More Proportionate Captive Framework In recent captive insurance news, following a consultation launched in November 2024 and a Government response published in July 2025, the direction of travel is now clear. The UK intends to introduce a more captive-specific regulatory regime – delivered through existing regulators – with the reforms focusing on three core areas. Simplified and Faster Authorisation Under the new framework, captives would benefit from a more proportionate and streamlined authorisation process. Rather than applying a model designed for commercial insurers, the intention is to reduce administrative friction and provide greater clarity and predictability at the point of entry. For organisations assessing captive feasibility, this lowers one of the most significant non-financial barriers to forming a captive. Proportionate Capital Requirements Capital has historically been one of the most significant obstacles to UK captive ownership. Under the previous regime, capital expectations often felt disconnected from the actual risks being retained. The new approach is expected to introduce lower, risk-based capital requirements, better aligned to the individual captive’s purpose, structure and risk profile. This reflects the reality that captives typically insure only their own group risks and do not present the same systemic risks as market insurers. Streamlined reporting and supervision Ongoing reporting requirements should be less burdensome than under the previous framework, while still maintaining appropriate oversight. The emphasis is on proportionality – aligning reporting obligations with the scale and nature of captive operations, rather than imposing reporting structures designed for insurers writing third-party business in the open market. Greater Flexibility in Structure and Scope The new regime is also expected to differentiate between direct-writing captives that insure group members directly, and reinsurance captives, which reinsure group risks. This distinction reflects common international practice and allows for more tailored regulatory treatment. The Government has also expressed support for the use of protected cell company (PCC) structures. PCCs allow multiple captive cells to operate within a single legal entity, with assets and liabilities segregated between cells. This structure can significantly reduce cost and capital barriers, making captive ownership more accessible for smaller and mid-market organisations that may not wish to establish a standalone insurer. In response to consultation feedback, the Government has also indicated a willingness to broaden the scope of the regime. This includes: Allowing certain financial services firms to establish captives for limited purposes. Permitting captives to write specific types of life insurance products such as group life fixed-term policies. And allowing compulsory lines to be written on a reinsurance basis, subject to safeguards. Who Stands to Benefit Most? While the policy intent is now well established, detailed rules are still to come. The Prudential Regulation Authority and Financial Conduct Authority are expected to consult on the proposed regulatory framework in the summer of 2026, with the new regime targeted for implementation in mid-2027. The reforms will be particularly relevant to organisations with complex or volatile risk profiles that have previously struggled to justify having a captive under the existing UK regime. Healthcare providers, for example, often face long-tail liability risks, increasing claims severity and sustained pressure on insurance costs. Greater flexibility around capital and reporting could make captives a more viable tool for managing these exposures over the long term. Manufacturing firms may also benefit, given their exposure to property risk, operational disruption and increasingly complex supply chains, with captives offering a mechanism to retain and manage these risks more strategically. For both these sectors, and a range of others, the reforms lower the threshold at which captives become a realistic option rather than a theoretical one. A More Competitive Landscape for Captive Insurance in the UK By simplifying authorisation, lowering capital barriers and reducing ongoing reporting burden, the UK is seeking to re-establish itself as a credible captive domicile. For organisations that previously explored captive formation and decided against it, the assumptions underpinning that decision may no longer hold. For existing captive owners, the reforms may unlock opportunities to expand, restructure or optimise arrangements designed under the older, more restrictive framework. Captives will not be right for every organisation. But for those that previously discounted a UK domicile, the assumptions behind that decision may now warrant review. As the regulatory framework takes shape over the next 12–18 months, organisations reviewing their approach to captive insurance may find the UK increasingly competitive.