Following its March discussion paper on the need to harmonise insurer recovery and resolution regimes across EEA countries, EIOPA issued a formal Opinion in July.
The Basel Committee and the EBA The European Systemic Risk Board (ESRB) issued a report in August that also called on the European Commission to introduce a harmonised legislative recovery and resolution framework for insurers and reinsurers.
Ever since the Financial Stability Board (FSB) first published its Key Attributes for Effective Resolution (KAs) in 2011, insurers have contested that they are not systemically risky in the way that banks are, due to their business model and significantly lower exposure to liquidity risk. Nevertheless, in 2014 the FSB added a specific insurance annex amendment to the KAs.
When the EU Bank Recovery and Resolution Directive (BRRD) was finalised in 2014, the Commission stated that further consideration would be given to introducing something similar for insurers, but little has happened subsequently. As mentioned in our March article, the updating of the insurance core principles by the IAIS to bring recovery and resolution into mainline insurance supervision from 2020 makes it more likely that something will happen at a European level.
There are no surprises in the EIOPA Opinion given its March discussion paper (PDF 1.14 MB). It proposes EU legislation similar to the BRRD for insurers, including:
The Advisory Technical Committee of the ESRB also calls for a recovery and resolution framework for the EU insurance sector (PDF 600 KB). Although there were differences of view among its members, the majority view is that:
The suggestion that policyholders could be required to bear a share of the losses if an insurer fails is again likely to prove controversial. Such a measure would need to be carefully constructed to ensure it does not undermine the supremacy of policyholder liabilities which was reinforced in Solvency II.
It is unclear how quickly the Commission will respond, but insurers may want to revisit the suggested actions set out in our March article.
Clive Briault (mailto: Clive.Briault@KPMG.co.uk)
Janine Hawes (mailto: firstname.lastname@example.org)