UK’s Financial Services Growth and Competitiveness Strategy: Welcome news for insurers

The Strategy (accompanied by a lengthy list of supporting papers from HM Treasury and the regulators) sets out numerous initiatives. A range of cross-sector reforms are proposed, including streamlining the Senior Managers and Certification Regime, reforming the Financial Ombudsman Service and improving regulatory approval processes.  See our article – UK Mansion House 2025 and the Financial Services Growth and Competitiveness Strategy: summary of key initiatives, for details of the proposals.

In addition, the government intends to support the insurance sector by reducing the regulatory burden faced by insurers, including:

• Streamlining the product governance and fair value requirements for insurance firms.
• Reforming conduct requirements for commercial and bespoke insurance business, supporting the FCA to remove unnecessary consumer protections when insurers serve large or specialist customers. This is an area the FCA has been looking at since July 2024 when it published a discussion paper on the regulation of commercial and bespoke insurance business. More recently, the FCA published a consultation paper on simplifying the insurance rules which covers elements of the discussion paper. The consultation closed on 2 July and a policy statement is due at the end of 2025.
• Introducing a streamlined regulatory approval process for Lloyd's of London managing agents, working with the Society to reduce the timeframe for authorisation.

A new regime for captive insurance

HM Treasury published a consultation response paper setting out the final proposals for a new regime for captive insurers in the UK. This news has been warmly received by stakeholders across the insurance sector – many have been lobbying the government for reform of the captive market since 2022.  For more information about the original consultation see our article – Captive audience: Will the UK's new captive insurance regime attract global attention.

HM Treasury states that while insurance industry respondents to the consultation were supportive of the original proposals, the majority pushed to broaden the scope of those proposals and in some instances the government has agreed to changes.

Types of captive: the Treasury has proposed different levels of regulation for ‘direct-writing captives' and ‘reinsurance captives'.  Most respondents acknowledged that there should be differentiation between types of captive but there was no overriding agreement on a particular categorisation system.  The Treasury has decided to keep to its initial proposal.  In designing the detailed rules for the framework, the PRA and FCA will consider the appropriate capital, reporting and other requirements for the different types of captive.

Exclusions and limitations: the Treasury's initial proposals excluded financial services firms from setting up their own captives but following feedback it has now agreed to allow financial services firms to set up captives for specific, limited purposes (e.g. to manage first party only risks, such as a building owned by a firm).  The Treasury has also agreed to allow a captive to write certain life insurance products (such as Group Life fixed term policies).  The Treasury remains of the view that captives should be excluded from writing compulsory lines on a direct basis but will permit captives to write these lines on a reinsurance basis as this offers an additional layer of protection.

Captive managers: The Treasury remains of the view that it is not necessary to have a separate regulatory approach for captive managers – the existing insurance intermediary regime will be used with any necessary adaptations to the rules made by the FCA.

Protected cell companies (PCCs): in the consultation, the Treasury sought views on opening PCCs to captive business as this may be a more viable option for smaller companies to access captive insurance.  There was significant support for this proposal and the Treasury is separately consulting on changes as part of its wider reform of the framework for risk transformation (see below).

Tax incentives: despite some respondents' advocating that beneficial tax arrangements would increase the UK's attractiveness as a location to establish a captive, the Treasury remains of the view that tax incentives are not a ‘necessary component of introducing a modern and competitive' captive framework.

Next steps: The PRA and FCA are working on regulatory proposals and published a joint announcement committing to developing a proportionate authorisation and regulatory regime. But timing wise, the PRA/FCA are not expected to consult on proposals until summer 2026 – with implementation in mid-2027.

Proposals for a more flexible risk transformation regime

The government has also published a consultation paper on proposals for reforms to  the risk transformation regime which includes reforming the UK's insurance linked securities offer to ensure that insurance for evolving risk (e.g. climate and cyber risks) can access funding through capital markets. It also considers the possibility of allowing protected cell companies to operate as insurers. The deadline for responses to the consultation is 8 October 2025.

The PRA consulted on changes to the ISPV regulatory framework last year and a policy statement is awaited; implementation of the PRA's changes is expected to be in H2 2025.

What was missing?

The Strategy paper makes no mention of the government's long awaited plan to introduce an Insurer Resolution Regime.

Authored by Kirsten Barber.