Insurance recovery and resolution framework

KEY POINTS

Scope and proportionality

The directive applies to:

• insurance and reinsurance undertakings authorised under the Solvency II Directive (see summary), except those already exempted as small undertakings;
• insurance holding companies and mixed financial holding companies;
• EU branches of non-EU-country insurance and reinsurance undertakings.

Measures may also extend to essential service providers, where necessary, to ensure continuity of provision of essential goods and services to the undertaking under resolution.

EU Member States may adopt stricter or additional rules consistent with the directive.

Pre-emptive recovery planning

• Supervisory authorities select undertakings on the basis of predefined criteria, and those undertakings must prepare pre-emptive recovery plans to restore financial soundness under stress.
• At least 60 % of a Member State’s life and non-life markets, respectively, must be subject to pre-emptive recovery planning.

Resolution planning

• Each Member State designates a resolution authority.
• Resolution authorities select undertakings on the basis of predefined criteria for which they need to prepare resolution plans.
• At least 40 % of a Member State’s life and non-life markets, respectively, must be subject to resolution planning.
• Plans identify critical functions, resolution strategies and measures to address obstacles to resolvability.
• Resolution authorities carry out resolvability assessments and have the power to require proportionate measures to remove or reduce obstacles to resolution, where necessary.

Conditions and objectives of resolution

Resolution may be applied only when:

• the undertaking is failing or likely to fail;
• no private or supervisory action can prevent it; and
• resolution is required in the public interest.

Its objectives are to:

• protect policyholders, beneficiaries and claimants;
• ensure continuity of critical functions;
• preserve financial stability; and
• minimise recourse to public financial support.

Losses are borne first by shareholders and then by creditors, with equal treatment within each class.

The no creditor worse off (NCWO) principle ensures no shareholder, creditor or policy holder is worse off in resolution than in insolvency.

Resolution tools and financing

• Resolution measures must rely on fair and prudent valuations of assets and liabilities.
• Resolution authorities may use the following tools:
• • solvent run-off – a supervised winding down of the business;
  • sale of business – the transfer of shares, assets or liabilities to another company;
  • bridge undertaking – a temporary entity created to maintain operations until a buyer is found;
  • asset-and-liability separation – the transfer of assets and liabilities to a special vehicle to preserve value;
  • write-down or conversion of liabilities – the reduction or conversion of certain liabilities to absorb losses.
• Resolution authorities may temporarily suspend payments or contract termination to support resolution.
• Each Member State may set up financing arrangements funded by insurers and reinsurers to cover at least payments under the NCWO principle.

Cooperation, review and amendments

• National authorities must cooperate with each other and with the European Insurance and Occupational Pensions Authority (EIOPA).
• The authority coordinates through a Resolution Committee and maintains a central database and single access point for national measures.
• By 29 January 2027, the European Commission must report on the possible creation of an EU framework for insurance guarantee schemes; then, by 29 January 2030, it must evaluate the functioning of the directive.
• The directive amends Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132, Regulations (EU) No 1094/2010, No 648/2012 and No 806/2014 and Regulation (EU) 2017/1129.