UK to slash authorisation time for captives

Authorisation for new UK-based captives will be fast-tracked under a standalone regulatory regime, said Rachel Reeves, Chancellor of the Exchequer, in her first Mansion House speech. The length of time it takes to get authorised will be cut from six weeks to 10 days under the new regime.

Reeves said the new Labour government had identified insurance and reinsurance as pivotal to growth and a priority growth opportunity for the country, as she also promised improvements to boost the UK’s insurance-linked securities (ILS) market.

The proposed reduction in authorisation is contained in Consultation Paper 15/24, published by the Prudential Regulation Regime on November 15.

Caroline Wagstaff, chief executive of the London Market Group, said a dedicated and proportionate regulatory regime specific to captives was necessary if the UK was to secure a share of this growing market and maintain its global status. “If London is to retain its position as a global centre for risk transfer, it needs to be able to offer all the tools in the toolkit; captives are an increasingly important part of that mix,” Wagstaff added.

Premium income from captives is set to reach $161 billion by 2030, according to a report by Cutts-Watson Consulting.

Julia Graham, chief executive of the Association for Insurance & Risk (Airmic), said: “Captives are taking centre stage as part of the established and long-term risk financing strategies of many important commercial organisations. In a context of complex challenges, the London insurance market retains a leading global position with an envious world-class reputation. 

“As part of this position, captives should play a mainstream role and in support of this, the UK should have a proportionate regulatory regime for captives.”

The London insurance market employs 60,000 people and contributes £50 billion – 2% of GPD – to the UK economy in 2023.

Krish Kistnassamy, head of general insurance in consultancy Hymans Robertson’s insurance and financial services practice, also backed regulatory reform. “In our view, the current UK captive and insurance special purpose vehicle (ISPV) framework is stricter than it needs to be, and the UK is therefore at a disadvantage relative to a number of other jurisdictions,” he said.

“The UK has a depth of underwriting, claims, administration, investment, broking, legal and actuarial expertise that already does work on ILS or captives. Making it easier to set up ISPVs or captives in the UK will allow a greater share of the fees for setting up and administering those vehicles to remain here and could support innovation, for example in the casualty or cyber-ILS space in general insurance,” he added.

Change has been a long time coming

It is almost three years since the Prudential Regulation Authority (PRA) was first called on to review its regulatory approach to authorising reinsurance vehicles.

Senior industry figures giving evidence to the House of Lords Industry and Regulators Committee said the UK was losing out to Singapore and Bermuda because of delays in authorising new reinsurance vehicles. Giving evidence to the committee in January 2022, London Market Group’s Wagstaff said the UK had lost out on $700 million premium income from insurance-linked securities as a result.

Following the inquiry, then-committee chair Lord Hollick wrote to HM Treasury in April 2022, asking it to address the “inflexibility and sometimes unnecessarily complex processes” of the regulator.

In CP15/24 the PRA acknowledges that the UK’s regulatory framework for ISPVs, which has been in place since 2017, has been little used.

“Feedback from market participants has been that the UK regime does not positively support the establishment of UK ISPVs. The PRA proposes amending its policy framework to allow the UK non-life insurance sector to play a bigger role in the global ILS market, while continuing to offer policyholders a level of protection consistent with the PRA’s objectives. The PRA considers that such changes will allow the UK ISPV regime to be more in line with global practice and make the regime more competitive,” the regulator said in the consultation paper.

The consultation closes on February 14, 2025.