The Insurance Recovery and Resolution Directive (“IRRD” or “Directive“), published in January 2025, introduces a new harmonised EU-wide framework for pre-emptive recovery planning and resolution planning for (re)insurers.

While there is very recent memory of Irish bank failures, Ireland has not been immune to insurer failures. More recent example includes CBL Insurance in 2018, alongside earlier collapses of systemically important insurers such as Quinn Insurance, PMPA and Insurance Corporation of Ireland. Elsewhere in Europe, the failure of Eurovita in Italy has underscored the continuing relevance of the risk of failure or near failure. Against this backdrop, the new IRRD measures are addressed at a harmonised approach in dealing with these types of stress events and (re)insurer failures. In the first part of this two-part series, we will discuss the background of the IRRD and its framework for pre-emptive recovery planning.

Effective from 30 January 2027, the IRRD targets perceived vulnerabilities of the (re)insurance sector identified during the 2008 global financial crisis. While Solvency II significantly strengthened the resilience of (re)insurers, the recitals to the Directive observe that it did not eliminate the risk of failure entirely, and references recent cross-border insolvencies of (re)insurers. The IRRD aims to close these gaps by ensuring that both (re)insurers and the new national resolution authorities are better equipped to manage distressed (re)insurers effectively, without resorting to extraordinary public financing (except insurance guarantee schemes or new resolution funds).

The IRRD draws parallels with the Banking Recovery and Resolution Directive (“BRRD”) introduced in 2015 but reflects the distinct operational characteristics of the (re)insurance sector. Unlike banks, (re)insurers do not have access to liquidity from central banks nor will large (re)insurers be subject to centralised decision making by a supranational resolution authority. For example, systemic banks within the Banking Union are subject to resolution by the Single Resolution Board.

Without reviewing the Directive and the thirteen EIOPA consultations outlining its implementation, it is easy to underestimate the IRRD’s impact and the extensive powers it confers on the new national resolution authorities.

Pre-Emptive Recovery Planning

“Recovery plans” are pre-emptive written procedures developed by (re)insurers during business-as-usual conditions, setting out how they will deal with stress scenarios. They aim to restore an undertaking’s financial position where that position has significantly deteriorated. The plans include qualitative and quantitative indicators tied to capital, liquidity, profitability and market conditions that trigger specific remedial actions. The plans also outline governance and communication strategies and the range of remedial actions available to the (re)insurer. Remedial actions can include recapitalisation, the issuance of subordinated debt, the

restructuring of business lines, or the divestment of certain portfolios or business lines. The (re)insurer is expected to conduct scenario analyses to test the feasibility and timeliness of these options.

Ireland is one of several EU Member States that has an existing domestic recovery planning regime in place. Therefore, there will be a familiar feel to the IRRD pre-emptive recovery plan provisions for any (re)insurers accustomed to preparing pre-emptive recovery plans under the Central Bank of Ireland’s (the Central Bank’s) 2021 Guidelines. The 2021 Guidelines largely align with the IRRD’s minimum expectations, and the Department of Finance indicated in its Consultation Paper last year that it is not minded to adopt stricter rules than those in the Directive. We should have clarity on what this will mean for Ireland’s existing domestic regime in the next few months.

The IRRD also introduces new dimensions, particularly around group recovery plans. Individual plans will only be required in exceptional cases, with group plans prepared by the ultimate EU parent undertaking taking precedence. The Central Bank has been designated as Ireland’s resolution authority and it will determine in-scope entities based on size, risk profile, substitutability, economic importance and the significance of their cross-border activities. Only 60% of an EU Member State’s life (re)insurance market and its non-life (re)insurance market is expected to be covered in each case. In calculating this market share, the Central Bank may consider subsidiary (re)insurers of a group who are subject to a group recovery plan in another EU Member State.

Please click here to read part 2 of our series on the IRRD which includes a discussion of resolution planning, and the IRRD’s resolution tools and measures.

For further information on recovery planning or the IRRD more generally, please contact Ian Murray or a member of the Insurance and Reinsurance Group.