HM Treasury announces new UK captive insurance framework and consultation on Risk Transformation Regulations

On 15 July 2025, HM Treasury announced:

1. the introduction of a new UK captive insurance framework, which will “enhance the international competitiveness of the UK insurance sector, support economic growth, and provide businesses with a greater range of risk management options”; and
2. a consultation on changes to the Risk Transformation Regulations (RTR), outlining permissive changes to existing regulations, which the Economic Secretary to the Treasury, Emma Reynolds MP suggests, focus “on opening up access to direct funding from investors in capital markets through insurance-linked securities (ILS).”

The new UK captive insurance framework aims to simplify regulatory processes and reduce capital requirements to support the growth of UK captives under a framework which differentiates, at least in the first instance, between direct-writing and reinsurance captives. Financial services businesses will be pleased to read that the Government accepts that they should be able to use captives themselves, even if restrictions are put in place regarding the types of risks they can cover. There is some nuance as well in respect of the Government’s views on whether life insurance and compulsory lines should be permitted risks to be written by captives. The Government has, however, stood firm on one particular area, noting that beneficial tax arrangements are "not a necessary component of introducing a modern and competitive captive insurance framework." 

The consultation on changes to the RTR also covers some elements useful for those wishing to establish captives, as it will be permissible to establish a captive using a protected cell company (PCC) structure. PCCs will become available not just for the purpose of risk transformation, but may, in future, be established as insurance undertakings.

The remainder of the consultation sets out a number of points including discussion on:

• giving the PRA more flexibility to determine how funding requirements are met in respect of transformer vehicles;
• opening the market to non-insurers, bringing the assumption of risks from non-insurers within the scope of the activities available to a risk transformation vehicle; and
• increasing flexibility around authorization.

DLA Piper has a proven track record of advising on complex transactions, set-up and structuring matters within the insurance sector. Our insurance transactions team advises on M&A including change-of-control processes, insurance entity establishment, insurance portfolio transfers, reinsurance transactions, schemes of arrangement, pension de-risking solutions, investment management partnerships and all related regulatory issues. Please reach out to us if it would be helpful to discuss how the UK's captive insurance framework or the RTRs might impact you.