Harmonisation of recovery and resolution frameworks for insurers

Harmonisation of recovery and resolution frameworks

The European Insurance and Occupational Pensions Authority (EIOPA) has issued a Discussion Paper on the potential harmonisation of recovery and resolution frameworks for insurers.

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An EIOPA survey of 30 national supervisory authorities shows that – in the absence of EU legislation governing recovery and resolution planning (RRP) for insurers – the landscape of national RRP frameworks has remained fragmented:

  • Existing frameworks do not generally contain a requirement for the development of pre-emptive recovery and resolution plans, including assessments of recoverability and resolvability, except for G-SIIs.
  • There is no officially designated administrative resolution authority for insurers in most Member States.
  • Most of the resolution powers listed in the FSB Key Attributes for Effective Resolution are not widely available. The powers to create and operate a bridge institution, to allocate losses to shareholders, creditors and policyholders, and to impose a temporary stay on early termination rights in insurance or financial contracts are available only in a limited number of Member States.
  • Many Member States have the powers to transfer an insurance portfolio and to override any transfer restrictions, but in some cases these powers are constrained.
  • Most Member States do not have (formal) crisis management groups or other equivalent arrangements in place to deal with crisis situations of cross-border insurance groups (again, except for G-SIIs).

EIOPA recognises that current resolution powers, such as to transfer the portfolio of an insurer and to put an insurer into (solvent) run-off, have proven to be adequate in dealing with many insurers in financial distress. However, this has not been tested for the failure of large cross-border insurance groups, some of which (in particular where part of a banking and insurance conglomerate) were rescued through government intervention.

The tentative conclusion reached by EIOPA is that a minimum harmonisation of RRP powers should be implemented, not least to deal effectively with cross-border cases. EIOPA therefore asks for comments on the implementation of each of the FSB’s Key Attributes, including recovery and resolvability planning and assessments (with interventions where these assessments identify impediments to recovery or resolution); and granting insurance resolution authorities (once they are established!) the full set of FSB-recommended resolution powers.

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