It is time to start the preparation for full IRRD compliance

The IRRD aims to enhance the stability and resilience of the EU insurance sector by better preparing insurers and relevant authorities for situations of substantial financial distress, enabling early and swift intervention, including across borders. It promotes pre-emptive recovery and resolution planning through a comprehensive and harmonized framework of tools and procedures designed to protect insurance policyholders, maintain market stability, ensure the continuity of critical functions and minimize the broader economic and financial system impact, thereby preventing the need for taxpayer-funded support.

IRRD builds on the framework established by the Bank Recovery and Resolution Directive (“BRRD”), adopted in 2014, addressing the lessons learned from the global financial crisis, aiming to create a unified regulatory framework for managing the recovery and resolution of credit institutions and investment firms to ensure financial stability and minimize the impact of banking crises on public finances. Although the two directives pursue similar objectives – namely safeguarding financial stability and avoiding taxpayer-funded interventions – the BRRD focuses on the banking sector, while the IRRD is tailored for insurers and reinsurers, taking into account the unique characteristics of the insurance sector.  This new regime provides a credible set of resolution tools for dealing with distressed insurers, drawing on the BRRD’s emphasis on early intervention, preparation, resolution measures and cross-border cooperation, while adapting these concepts to the more complex nature of insurance business models. Despite the many similarities between the two directives, there are also significant differences, one of the most notable being that, unlike the BRRD, the IRRD does not include Minimum Requirement for Own Funds and Eligible Liabilities (MREL) requirements.

IRRD establishes a comprehensive set of requirements from preparation and planning to resolution aspects, tools and funding (small and non-complex insurance and reinsurance undertakings are exempt from the pre-emptive recovery and resolution planning requirements unless the supervisory authority determines otherwise considering the risk profile of the institution). Depending on the characteristics of an institution (size, business model, risk profile, interconnectedness), pre-emptive recovery plans must be developed in a business-as-usual scenario, containing prudential financial data, a framework for recovery indicators, possible corrective measures, and a communication plan. These are subject to review and stress testing by the relevant supervisory authority, which may request additional information or modifications. For other non-viable institutions that cannot recover and resolution is in the public interest (also decided based on the size, business model, risk profile and interconnectedness of the institution), resolution plans are required. Resolution planning, supervised by resolution authorities, outlines options for applying resolution tools to insurance and reinsurance undertakings that are failing or likely to fail, where no other supervisory measures can prevent failure. These tools include the solvent run-off tool, the bridge undertaking tool, the asset and liability separation tool, the sale-of-business tool, and the write-down or conversion tool. Resolution authorities may use these tools individually or in combination, except the asset and liability separation tool, which must be applied alongside at least one other resolution tool. The funding of these resolution tools will be obtained either ex-ante, ex-post, or through a combination of both methods from the financing arrangements established by the Member States.

To support the implementation of the IRRD, the European Insurance and Occupational Pensions Authority (EIOPA) developed numerous Regulatory Technical Standards (RTS), Implementing Technical Standards (ITS) and guidelines. These materials have been and will continue to be released in batches, with extensive public consultations to ensure stakeholder engagement and transparency. The planned timeline and current state for these supporting materials is as follows:

Next steps

We have summarized the next most important steps below: