McGovern: ‘Keep up the pressure’ for competitive captive rules

By Rebecca Delaney

July 16 - (The Insurer) - The UK insurance sector must “keep up the pressure” and engage with financial services regulators as they develop policy proposals for a UK captive regime, Sean McGovern has urged.

Speaking to The Insurer in his capacity as chair of the London Market Group, McGovern welcomed the government’s response on Tuesday to its consultation on a UK captive framework.

The response said the Financial Conduct Authority and Prudential Regulation Authority are planning to move forward and consult on policy proposals in summer 2026.

The captive insurance framework will require a statutory instrument but no new legislation, which would otherwise create a longer timeline for implementation.

“Obviously there's still a lot of work to do to build the regime. This really is kickstarting the more detailed process of crafting rules,” said McGovern.

“The expectation is that by this time next year we will have rules out for consultation, then aim to have it implemented midway through 2027. So we'll need to continue to keep up the pressure, keep up the pace, keep up the engagement through that.”

In the time between now and the policy consultation next summer, McGovern said the LMG and UK insurance industry representatives “stand ready” to engage with the PRA on designing a competitive regime.

“One of the things that was mentioned in the consultation was around whether or not tax incentives were required in order to make the regime attractive. The government's been pretty clear that tax is not part of the structure of this, so the criticality of the regulation regime becomes even more material,” he added.

McGovern continued that the government has offered a “very clear steer” to the regulators around its expectations for a proportionate regime from a rules and capital perspective.

This includes a broad view on the opportunity of insurance and reinsurance captives, with the government also publishing a consultation on Tuesday on potential reforms to its protected cell company (PCC) framework following significant support in the original consultation.

McGovern noted that a PCC structure for captives would make self-insurance vehicles a more viable option for mid-market companies that otherwise lack the scale to set up a standalone captive.

“We've got to make sure that the rules are framed in a way that continues to be attractive to all shapes and sizes of company, including those where, currently, captives probably aren't a risk management tool that they would choose to use because of the costs,” he said.

As the industry now awaits the opportunity to provide pre-consultation input on policy proposals, projections around the number of new captive formations and re-domiciliations remain uncertain.

“What's clear from the responses to the consultation is that there is very strong support from corporate Britain for the establishment of a captive regime. Until we start to see the actual rules, it's very difficult to predict exactly what individual companies will decide to do,” said McGovern.

In terms of the infrastructure underpinning a captive regime, the UK government said it received varying opinions over the regulation of captive managers.

Following the publication of the government response, Aon said it is “very advanced” in its preparation to launch a new UK-based captive management company.

“I expect all of the businesses, particularly on the broking side, who have these capabilities in other jurisdictions will look at building those capabilities here in the UK,” said McGovern.

“How many we need is difficult to say because we just don't know what the demand is going to be. But I would expect everyone will be looking at what the commercial opportunities are for them, both on the carrier and the broking side, once it's implemented.”

GROWTH AND COMPETITIVENESS STRATEGY

Progressing the captive regime forms part of the government’s wider financial services growth and competitiveness strategy, which was outlined by Chancellor Rachel Reeves at her Mansion House address on Tuesday evening.

“To have the government talking about the need for financial services regulation to be internationally competitive is a very strong statement,” said McGovern.

“For the London market, because we compete for capital, business and people with other centres around the world, having an eye to how our regulatory regime fits with other regulatory regimes is a very positive objective.”

Ensuring a competitive domicile for capital is particularly crucial for the London market given the volume of capital supporting the market that originates from outside of the UK.

In March, HM Treasury underlined an action plan to establish a concierge service for international financial services firms looking to domicile in London, in the form of a partnership between the city, regulators and government.

“The vast majority of the capital that supports the London market comes from outside of the UK, so the easier we can make it for capital to see the London market as a location to deploy capital to match to risk is a hugely positive step forward,” said McGovern.

“The fact that there's quite an aggressive timetable to launch that in October is a real statement of intent on the government's part that they're serious about making the UK a destination of choice for financial services. That will be a big help to us for the London market generally, but also will support the discussions we need to have on the development of the captive regime.”