The Insurance Recovery and Resolution Directive (“IRRD”) has now been published in the Official Journal of the EU. Modelled on the well-established Bank Recovery and Resolution Directive, which was established more than 10 years ago for the banking sector, the IRRD introduces a new regulatory framework the aim of which is to strengthen the stability and resilience of insurance sector in the EU. The IRRD sets uniform standards for recovery and resolution planning and it seeks to ensure a consistent approach across all Member States with the underlying aim to safeguard policyholder interests while also maintaining financial stability.
Preamble
The preamble to the IRRD recognises that although the Solvency II Directive was aimed at strengthening the financial system in the EU and the resilience of insurance and reinsurance undertakings, it did not completely eliminate the possibility of failures of such insurance and reinsurance undertakings. Building on the framework established by Solvency II, the IRRD introduces measures to ensure that, even in cases of significant financial difficulty, relevant authorities can act quickly and effectively to protect policyholders, maintain financial stability, and minimise use of public funds.
New Concepts
The IRRD introduces a range of new concepts for example - the establishment of a ‘resolution authority’ (“RA”) which each Member State must designate. The IRRD also creates an obligation for certain undertakings to draw up, keep updated and submit a ‘pre-emptive recovery plan’, which will be reviewed and assessed by supervisory authorities. Supervisory authorities must ensure that at least 60 % of the Member State’s life and non - life (re) insurance market are subject to pre-emptive recovery planning requirements. The IRRD also requires the RA, following consultation with supervisory authorities, to draw up ‘resolution plans’ for certain undertakings following an assessment of criteria laid out in the IRRD. The RA must ensure that at least 40 % of the Member State’s life and non - life (re) insurance market are subject to resolution planning. Simplified obligations for certain undertakings are envisaged under IRRD, as are specific Group pre-emptive recovery plans and Group resolution planning.
Current position in Ireland
Early 2021 saw the introduction of dedicated regulations requiring pre-emptive recovery planning by (re)insurers in Ireland along with supporting guidance from the Central Bank of Ireland (“Central Bank”). Insurers will recall that in September 2021, the Department of Finance, in collaboration with the Central Bank, turned their attention to resolution planning and launched a public consultation on the development and scope of a possible domestic resolution framework for insurers. On 16 May 2022, the Department of Finance published the feedback statement from the public consultation. It was noted that, since the consultation was launched, the European Commission had published a legislative proposal, the IRRD, and that the proposal was, in many ways, aligned with Ireland’s proposed potential domestic framework. Therefore, the Department of Finance and Central Bank explained that they would input into the IRRD as a means to progress a resolution framework for insurers and would not proceed with a domestic framework and noted that the feedback to the consultation would assist in defining its negotiation position for the IRRD.
Next Steps
The IRRD will come into force on 28 January 2025. Member States will have until 29 January 2027 to transpose the IRRD into their national laws.
We now await to see how both the pre-emptive recovery planning regulations will be impacted by the transposition of IRRD and whether its contents align with the expectations of both the Department of Finance and the Central Bank as regards a resolution framework. We will closely monitor developments in this regard.
Should you have any queries in relation to the IRRD, please contact Darren Maher, Gráinne Callanan, Elaine Long or your usual Matheson LLP contact.