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The new Insurance Recovery and Resolution Directive - what you need to know

Written by Artjom Altenhof, Senior Consultant.
Reviewed by Francis Furey, Managing Consultant.



In September 2021, the EU came one step closer to creating a harmonised regime for resolving failed insurers. Following EIOPA’s Solvency II review (on which Finalyse commented) and its advice to create a harmonised resolution regime, the European Commission published its proposal for an Insurers Recovery and Resolution Directive (“IRRD”).

The Directive is planned to be voted on in the European Parliament in early 2023 and it can be still modified in the intervening period. If the EU Parliament passes the Directive, it will come into force six months later. Within 18 months after the entry in force, EIOPA will issue technical standards and guidelines.

The legislator chose a directive as a legal tool to introduce recovery and resolution planning because a directive must be transposed into member-state national law. This will end the fragmented landscape of national resolution legislation and create a level playing field. Most EU member states don’t even have resolution legislation specific to insurers; as a result, the broad bankruptcy legislation applies for them.  

The IRRD has the ambition to improve policy holder’s and claimant’s protection and to prevent taxpayers having to bail-out poorly managed insurance companies. However, the Directive will create an additional administrative burden for most insurers, so that it is worth taking a closer look at what to expect.

Pre-emptive recovery planning

Most insurance companies will be required to submit annually or, in the case of a significant event (i.e., a M&A) a pre-emptive recovery plan unless explicitly exempt by the responsible resolution authority. A recovery plan describes how the insurance company will react to adverse scenarios and restore its solvency position. 

What are the national criteria for being subject to pre-emptive recovery planning?

The IRRD requires that 80% of the national market is subject to pre-emptive recovery planning. The market share will be measured by the premium for non-life insurers and by technical provisions for life insurers. Supervisory authorities will select insurers based on their size, business model, risk profile, interconnectedness, substitutability, and cross-border activity. EIOPA will publicly disclose the number of companies subject to recovery planning obligation and the number of companies where simplified requirements are applied.

What should pre-emptive recovery plan cover?

The pre-emptive recovery plan will contain the following information:

  • a summary of key elements and changes to the most recently filed recovery plan
  • a description of the business
  • a set of indicators (i.e., SCR ratio or profitability) which determine in a selected scenario (i.e., economic downturn, mass lapse) whether the company should enter in the recovery mode
  • the process of creation, updating and implementation of the recovery plan
  • remediations (i.e., reduction in profit sharing, dividends, bonuses) 
  • communication strategy. 

By no means can an insurance company rely on public support in the case of distress.

What will EIOPA technical standards specify?

EIOPA will issue technical standards which specify minimum harmonised standards on recovery plans. The guidelines will specify the following:

  • criteria for applying simplified obligation
  • calculation of market share to determine the scope of recovery planning
  • a minimum list of indicators and a range of scenarios
  • identification of critical functions
  • measures to remove impediments to resolvability
  • the content of the summary

Supervisory authorities will have six months to review the recovery plans on compliance with the IRRD. Afterwards, they will share them with the resolution authority, which will review them on any impediment to resolvability. In case of deficiencies, insurance companies will get a chance to rework their recovery plans. If the deficiencies remain, supervisory authorities will apply sanctions. 

Resolution planning

The IRRD doesn’t prescribe what a resolution authority should look like. Each member state is free to choose its resolution authority to receive the powers and tools necessary to handle resolutions effectively. It can be part of the Ministry of Finance, National Bank, or new authority.
National resolution authorities will have to submit annually or after major events a resolution plan to supervisory authorities for a significant part of the insurance market. The resolution plan should elaborate how the resolution authority wants to minimise the impact of the business failure on policyholders, claimants, employees, and society using resolution tools and powers.

What should resolution plans cover?

Resolutions plans should cover, among other, the following topics:

  • summary of key elements of the plan as well as material changes since the last time the resolution plan was updated
  • separation of critical functions to ensure continuity
  • identification of collateral assets
  • assessment of resolvability and measures to remove any impediments to it
  • timeframe to execute the resolution plan
  • financing of resolution option without recurring to public support (i.e., guarantee schemes)
  • critical interdependencies
  • impact on employees
  • essential operations and systems needed to maintain the continuous function of the insurer
  • communication with media and public

The resolution plans should consider different resolution scenarios; especially, it should be prepared for a company-specific event and a broad economic crisis.

What is the role of the resolution authority?

Insurance companies and supervisory authorities will be required to cooperate with resolution authorities on resolution planning. EIOPA will draft technical standards specifying the information and the process of supplying the resolution authorities with the relevant information.

A resolution authority will first apply remedial actions as specified in the recovery plan. If this is not enough, the IRRD specifies a set of five resolutions tool which a resolution authority can apply:

  1. run-off (no new business)
  2. sale of business
  3. bridge undertaking (public entity controlled by resolution authority)
  4. asset and liability separation (transfer to different asset or liability management firms)
  5. debt write-down or debt-to-equity conversion tool

To guarantee effective application of the resolution tools, the national legislators should equip resolution authorities with sufficient powers. The authorities should have the power to restructure equity and debt, withdraw the license to write new business, take control, replace the management and request information.

A resolution is supposed to intervene earlier than an insolvency proceeding to limit the losses as much as possible. While the IRRD aims to protect stakeholders, the shareholders and creditors should not be worse off under a resolution procedure than under an ordinary bankruptcy procedure. If this is the case, the resolution authority will have to pay them a compensation.


Before resolving an insurance company, it is first necessary to assess whether the company is resolvable at all. Resolvability means that the insurer can be either liquidated under usual insolvency proceedings or resolved by applying actions from the resolution plan. 

EIOPA will draft technical standards to specify criteria for resolvability.

Resolution authorities will also have to perform a resolvability assessment as part of resolution planning. If a resolution authority finds an impediment to resolvability, the authority can ask the company to remove it. 

What measures can the resolution authority impose on companies in order to achieve resolvability?

If the insurance company fails to be resolvable, the resolution authority can impose a set of measures to restore it:

  • revise intra-company financing or review the absence of it
  • require limits to specific asset exposure
  • require service agreements either intra-group or with third parties
  • impose additional information requirements to share with resolution authorities
  • require divesting assets or restructuring liabilities
  • require changes in reinsurance programmes
  • restrict or limit new or existing business
  • require changes to legal or operation structure

EIOPA will specify guidance on measures to apply to restore resolvability.


We welcome the proposal by the EU to create a harmonised resolution regime via an Insurers Recovery and Resolution Directive. This will bring an end to the fragmented landscape of national resolution legislation and create a level playing field amongst EU member states. 

As noted previously, the IRRD will hopefully improve policy holder’s and claimant’s protection and to reduce the amount of insurance companies being bailed out by taxpayers. However, the Directive will create an additional administrative burden for insurers and so insurers will need to prepare accordingly for the extra work that this Directive entails. Finalyse can help you navigate the complexities of this Directive and help prepare you a roadmap and path to successful implementation.

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