HM Treasury – the UK government department responsible for economic and financial policy – has outlined plans to advance legislation that will allow protected cell companies (PCCs) to be used within the UK captive insurance framework.
The proposals form part of a wider consultation considering how the PCC structure could be extended to its current role in risk transformation, including questions about necessary legislative changes, potential risks and additional opportunities associated with its wider use in insurance.
HM Treasury reported that respondents generally supported removing restrictions on PCC risk transformation activities, noting that these structures are cost-effective and well suited for captive insurance.
Meanwhile, HM Treasury highlighted that some respondents noted the complexity of PCC and stressed the importance of a careful implementation approach to ensure cell isolation standards remain robust.
HM Treasury also noted that respondents believed that if self-insured PCCs were allowed, there would be no need for PCC applications to incorporate existing requirements for risk transformation.
Concerns were raised about limiting a single PCC to undertake both risk transformation and insurance activities, with some respondents observing that other jurisdictions allow the separation of these functions at the unit level without increasing risk.
HM Treasury further recorded that respondents believed there were other potential uses for PCCs beyond captive insurance, including fronting arrangements and mortgage reinsurance, which could provide greater flexibility than traditional structures. However, HM Treasury said respondents did not believe these uses should take precedence over self-insurance, stressing the need to maintain policyholder protections and appropriate regulation.
In response, HM Treasury confirmed its intention to advance legislation to enable PCCs to give effect to and perform insurance contracts, supporting their inclusion in the new UK captive insurance regime. HM Treasury said it would seek to gain powers through primary legislation, parliamentary time permitting, aimed at creating a framework for two types of PCCs: existing risk transformation PCCs and new insurance PCCs capable of underwriting insurance business.
HM Treasury explained that the new self-insurance system is expected to be rolled out in summer 2027. As the legislative steps required to enable PCCs to operate as insurance companies will involve primary and secondary legislation, HM Treasury clarified that PCCs will not be included at launch. HM Treasury added that it will continue to work closely with the Prudential Regulation Authority to support its inclusion once the necessary legislative framework is in place.
This coordination is reflected in the Prudential Regulation Authority’s expressed support for HM Treasury’s direction to reform the UK’s risk transformation regime, including changes affecting insurance special purpose vehicles and the introduction of PCC captives.
The UK Prudential Regulation Authority noted that it has worked closely with HM Treasury on the proposals and intends to consult on a new captive insurance regime in summer 2026, which aims to strengthen the UK’s position as a wholesale insurance center and expand the use of captive insurance as a risk management tool.
The Prudential Regulation Authority explained that the PCC will not be included in this consultation or the regime expected to be launched for the first time in summer 2027, as the required legislation has not yet come into force.
It said it would continue to work with HM Treasury and looked forward to consultations on merging the PCC once the legislative framework was established. The Prudential Regulation Authority also noted that it will introduce reforms to the insurance special purpose vehicle framework in 2025, including accelerated pathways for certain structures, and intends to consult on further reforms to improve simplicity, flexibility and access, including reforms related to the use of PCCs once legislative barriers are removed.
It added that the planned reforms and new captive insurance regime are all designed to support the competitiveness and growth of the UK insurance industry and the wider economy.
HM Treasury acknowledged concerns over whether a single PCC should be allowed to undertake risk transformation and insurance activities. HM Treasury noted that as the PCC is a single legal entity, combining these functions would give rise to regulatory and tax considerations, even if the activities are divided into units. Therefore, the British Treasury stated that it does not plan to legislate dual-use PCC at this stage.
HM Treasury also recognizes that the PCCs identified during the consultation have wider potential uses. However, HM Treasury said these applications would not be immediately prioritized due to their complexity and associated risks. Instead, HM Treasury said the legislation would be designed not to exclude such uses, allowing the regulator to consider extending its scope beyond captive insurance where appropriate.
Further details on anticipated legislative changes designed to enhance the flexibility of the UK’s risk transformation and insurance-related securities regulatory regimes can also be found here.
