AIRMIC CALLS FOR A CLASS-BASED OR GRADED REGULATORY REGIME FOR CAPTIVES IN THE UK

The UK should create a class-based or graded regulatory regime for captive insurance companies, comparable to those in place in Bermuda and Singapore, Airmic said in its submission today in response to HM Treasury’s Consultation on captive insurance.

Airmic recognises that the demand for captives is growing around the world. As captives move more into the mainstream of risk financing, we believe it is a logical development for this to be reflected within the UK as a leading financial services centre.

In a survey of Airmic members on captives conducted last month, 67% of respondents said their organisation already uses a captive. Of those whose organisation did not, 75% said their organisation was exploring the possibility of forming a captive now or in the future. Airmic members do, and will, continue to make use of a wide range of captive domiciles around the world. An additional UK option will further strengthen their hand and choices as they implement increasingly sophisticated risk financing strategies.

In her first Mansion House speech on 14 November 2024, Chancellor of the Exchequer Rachel Reeves announced the government’s consultation on a new approach to regulating UK captive insurers.

Airmic’s submission was the result of meetings of an advisory group of Airmic members formed to consider the Treasury’s consultation, as well as the survey of Airmic members on captives conducted last month. Findings from the survey will be released at the Airmic Captives Forum on 5 March, to be held at Lloyd’s of London.

Julia Graham, CEO of Airmic, said: “To be a competitive captive jurisdiction, the UK must clearly define what will qualify as a captive (re)insurer and offer a proportional, risk-based regulatory regime that facilitates a range of uses."

“As the Airmic survey will report when published, our members utilise captives for a wide variety of reasons – from insuring P&C and liability risks, to reinsuring international employee benefits, offering affiliated third-party insurance products, and risk management services. After consultation with our members, we urge the Government to design a regulatory regime that is fit for the growing ambition of captives.”

In the submission, Airmic also recommended that:

• A UK Reinsurance and Insurance Captive definition be created, as this represents a very low risk to the wider financial system;
• A UK Reinsurance Captive should also be permitted to reinsure International Employee Benefits programmes within the same captive as P&C risks;
• If a graded classification system is also adopted, then additional categories could be facilitated that allow captives to write Related Third-Party Business;
• From the outset, there needs to be straightforward, responsive, fast and cost-effective regulation and servicing to reduce the barriers to entry.

Airmic also offered to work with the regulators to identify ‘best in class’ initial applications to ensure that the approval process for captives works effectively, as well as on a simulation exercise to test a theoretical application, before the UK regime went live.

Richard Cutcher, Captives Ambassador for Airmic, said: “The global captive domicile landscape is an increasingly competitive place as we enter a new phase of evolution with large industrial nations, such as France, entering the fray. As captives continue to go mainstream, the UK is in a unique position to offer a fit-for-purpose regulatory regime alongside the world’s largest and most advanced commercial insurance market.”

Airmic will be publishing a white paper summarising its submission to the Treasury.

Contact
Leigh-Anne Slade, Head of Media, Communications and Interest Groups, Airmic
Leigh-Anne.Slade@airmic.com
07956 41 78 77