Mobilisation regime [UK]
Introduction
On 31 December 2024, a new mobilisation regime for insurers came into effect. Mobilisation is an optional process for the authorisation of new insurers and is aimed at allowing new start-up insurers to enter the market even though they do not have all the financial and non-financial requirements fully in place. It enables a new insurer to obtain authorisation for a maximum period of 12 months during which time the insurer operates under prescribed restrictions. This gives the insurer the advantage of being authorised while completing its operational set-up – such as obtaining investment, recruiting senior staff or putting in place IT or other infrastructure. The restrictions will ensure that any business written during the mobilisation period is limited in amount and type.
Background
Since August 2018, the Prudential Regulation Authority (PRA) jointly with the Financial Conduct Authority (FCA) has operated a New Insurer Start Up Unit providing information and support to applicants with the aim of improving the efficiency of the application and review process. Following the Government’s review of the Solvency II regime, it has worked with the PRA to take forward proposals for a new mobilisation regime.
The Mobilisation Regime
In CP12/23 (Review of Solvency II: Adapting to the UK insurance market) the PRA set out its plans for a mobilisation regime using powers under Part 4A of the Financial Services and Markets Act 2000 and the amended Minimum Capital Requirement Part of the PRA Rulebook. The PRA did not make any changes to the proposals following feedback.[1] The key features of mobilisation are:
- It is optional.
- It is time limited – the mobilisation period runs for up to 12 months from the date of authorisation. The PRA/FCA would not expect to extend this period unless there are exceptional circumstances.
- The PRA will lower the regulatory requirements expected of the firm so that they are proportionate to the firm’s business. The includes lowering the maximum capital requirement floor for the firm to £1 million.
- Restrictions on the nature, scale and complexity of the business will be imposed by the PRA/FCA.
The Application and Exit Process
Pre Application Stage: The PRA/FCA will decide if the application is suitable for mobilisation and will set out their broad expectations and requirements/restrictions. An applicant is likely to be considered suitable for mobilisation if it has a short list of activities to be completed such as recruiting senior staff, finding additional investment or sorting out infrastructure. Firms that have sufficient resources, e.g., it is part of an established insurance group, would not be considered suitable. At this stage, the applicant must decide if it wants to continue with the mobilisation process.
Application Stage [up to 6 months if the application is complete]: An application is submitted together with a Mobilisation Plan. The Plan must set out details of the firm’s ‘mobilisation activities’ – such as funding, recruitment, building infrastructure, finalising operational plans and policies with clear and realistic targets and provide details of how the firm could exit the market in an orderly and timely manner if it does not achieve those targets. The PRA/FCA then decides whether to grant the Part 4A authorisation and sets out the restrictions. The PRA/FCA must be satisfied that the firm will be able to meet and maintain the Threshold Conditions and exit mobilisation within the 12 month period.
Mobilisation Stage [up to 12 months]: The firm is authorised and may write business within the boundaries of the prescribed restrictions. The level of restrictions will be determined on a case by case basis. Generally, a firm may only be allowed to write policies that cover short-term and short-tail risks and produce a cumulative net exposure below a prescribed maximum limit. The firm must supply regular progress reports to the PRA/FCA as it completes the setup of its business operations as set out in the Mobilisation Plan. The PRA/FCA will be expecting the firm to be working towards meeting the full regulatory requirements required for a full authorisation (see table below).
Exit from the mobilisation stage: At least 3 months before the expiry of the 12 month period, the firm must apply for a Variation of Permission to remove the mobilisation restrictions. The PRA/FCA must decide whether to approve the application. The firm should have completed all its mobilisation activities, be fully operational and able to meet the full regulatory and capital requirements. Once approved, the firm moves out of mobilisation or, if the application for variation is refused, the firm must exit the market and its Part 4A authorisation will be cancelled.
The PRA was due to publish guidance on the mobilisation framework by the end of 2024 but that has been delayed.
[1] PS2/24 Review of Solvency II: Adapting the UK insurance market February 2024