Home Knowledge Ireland awaits the new EU Insurance Recovery and Resolution Directive

Ireland awaits the new EU Insurance Recovery and Resolution Directive


The proposed EU Insurance Recovery and Resolution Directive (IRRD), once implemented will introduce, for the first time at a European level, a harmonised recovery and resolution framework for failing or likely to fail EU insurers and reinsurers.  Once IRRD enters into force, Member States are required to adopt implementing regulations.  These national regulations are expected to take effect by the end of 2024.

What is the IRRD?

Under the IRRD national authorities will be given resolution powers to apply where an insurance or reinsurance undertaking, or an associated holding company, is failing or is likely to fail.  Implementing such a regime was an agenda item arising from the last financial crisis.  The IRRD measures mirror aspects of the EU Bank Recovery and Resolution Directive (2014/59/EU) that applies to credit institutions.

The IRRD will supplement the existing recovery and resolution regimes in Member States, including Ireland.  In Ireland, there are existing administrative processes for stressed (re)insurers available through the Insurance (No.2) Act 1983.   This Act empowers to the Central Bank of Ireland, as the Irish financial services regulator, to petition the Irish High Court for the appointment of an administrator.  During the administration process, the administrator takes the place of the directors. Furthermore, claims against a (re)insurer can be stayed during that period.  Other potential powers exist through the Companies Act 2014, such as the examinership process, as well as some recovery and resolution mechanisms under the Irish regulations implementing the Solvency II Directive.

The new measures under the IRRD will supplement the current regimes and provide common “tools” for dealing with stressed (re)insurers, including Irish ones, and an alternative to regular insolvency proceedings.  A further feature of the IRRD is the requirement for EU (re)insurers and associated holding companies to include new “stay recognition” and “bail-in” clauses in relevant contracts to help mitigate relevant losses where a stress scenario arises.

The overall objective of the IRRD is to provide better protection for policyholders and reinsurance counterparties by reducing the risk of a (re)insurer failing while also protecting taxpayers from having to bail-out distressed undertakings.  However, to achieve this objective, there will be ongoing, increased administrative burdens on (re)insurers and related entities.

Current Status of IRRD

European Insurance and Occupational Pensions Authority (EIOPA) is the supervisory authority whose remit extends to (re)insurers.  In progressing the draft directive through the European institutions, EIOPA published a consultation paper in October 2019.  This paper, to which William Fry (through the Irish Department of Finance’s consultation) provided commentary, references the current “patchwork quilt” of national approaches to recovery and resolution measures.  Although some Member States have progressive local law measures, others function with limited insolvency procedures and only some or no pre-emptive planning elements.

EIOPA observed a need for a two-stage recovery and resolution approach for (re)insurers that have breached their solvency capital requirement.  It also highlights the need for a common European approach, to ensure continuity across Member States.

The proposed IRRD is likely to be voted on in the European Parliament by early 2023, while still being subject to amendment in the interim.  If the European Parliament adopts the IRRD, Ireland and the other Member States will be required to adopt national implementing measures to take effect 18 months after IRRD becomes law, approximately the third quarter of 2024.

Effects of the IRRD

Implementing the new obligations under the IRRD will necessitate substantial work by (re)insurers and their groups. (Re)insurers operating in Member States that do not currently have similar legislation will feel the most significant impact.

Although the metrics are not yet finalised, as currently envisaged, at least 80% of relevant (re)insurers within each EU “national market” will have to have pre-emptive recovery planning measures in place. At least 70% of relevant insurance markets must be covered by resolution plans.   Plans will reference premium levels written, as well as risk profile, size, business model, cross-border activity and substitutability.

The IRRD will apply to a broad range of entities, not only EU (re)insurers subject to Solvency II but also EU insurance holding companies and EU mixed financial holding companies. Some of the proposed provisions will also affect EU branches of non-EU insurance companies.

Each Member State will be obliged to designate a national “resolution authority”, which will be given a set of powers. The authorities will then aim to champion the ongoing regulatory relationships between (re)insurers and their groups. If there is an existing authority in a Member State, arrangements will have to be made to avoid potential conflicts of interest and allow for the effective independence of the resolution authority. The IRRD also requires the establishment of “resolution colleges” to help with cross-border concerns and decision making.  A group’s overall resolution authority would chair the college and would include EIOPA, the resolution authorities of the home Member State of all group (re)insurers and Member States in which the companies have considerable cross-border activities.

Function of Member State Authorities

The resolution authority in each Member State must guarantee co-operation from (re)insurers and supervisory authorities on resolution planning. The relevant authorities will be supplied with technical standards, which will be drafted by EIOPA, laying out the overall approach. In the first instance, each resolution authority will apply remedial actions and, if these fail, the IRRD provides a set of “tools” including:

  1. Solvent run-off (i.e. no new business)
  2. Sale of business
  3. Bridge undertaking (i.e. public entity controlled by resolution authority)
  4. Asset and liability separation (i.e. assets and liabilities transferred to asset management vehicles controlled by public authorities)
  5. Write-down and conversion (i.e. bail-in)

For the tools to be effective, national legislators must ensure resolution authorities have sufficient powers.  These powers will include being able to take control of a (re)insurer and request information.  An important factor will be taking the earliest possible intervention and thus avoiding ending-up in insolvency proceedings.  This should mitigate losses generally. The IRRD intends to protect stakeholders, though shareholders and creditors should not be worse off than under a bankruptcy strategy.

An appraisal must be made if a (re)insurer needs a resolution or recovery mechanism.  It should be established if the appropriate approach is either by the usual insolvency proceedings or the resolution plan which the (re)insurer will have put in place.  Technical standards to measure resolvability will be drafted by EIOPA and the resolution authorities will have to carry out such an assessment during resolution planning. Powers will be given to resolution authorities to ensure that an inability to sufficiently resolve the position never arises and instead the entity can be placed into resolution before the (re)insurer’s Minimum Capital Requirement (i.e.  its absolute “minimum”) is ever affected.


The proposal to harmonise the EU resolution and recovery regimes through the IRRD should create a level playing field across Member States.  All industry stakeholders should ultimately benefit.  While there will be significant administration requirements on (re)insurers, it is intended that the overall benefit will outweigh this greater administrative burden.   The implementation of the IRRD in Ireland can be expected towards the end of 2024.


Contributed by Hannah Garvey