The European Parliament adopted by 475 votes to 37, with 99 abstentions, a legislative resolution on the proposal for a directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012.

As a reminder, the objective of this proposal for a directive is to harmonise the rules and procedures for the resolution of insurance and reinsurance undertakings with a view to making the insurance and reinsurance sector more resilient and strengthening the protection of policyholders, taxpayers, the economy and financial stability within the EU. The directive will introduce harmonised resolution procedures, which will facilitate the management of insurance company failures, particularly in a cross-border context.

The European Parliament’s position adopted at first reading under the ordinary legislative procedure amends the proposal as follows:

Pre-emptive recovery plans

Member States should ensure that insurance and reinsurance undertakings that are not part of a group subject to pre-emptive recovery planning, and that meet certain criteria, draw up and keep updated a pre-emptive recovery plan. Member States should ensure that the supervisory authority subjects insurance and reinsurance undertakings to pre-emptive recovery planning requirements on the basis of their size, business model, risk profile, interconnectedness, substitutability, their importance for the economy of the Member States in which they operate and their cross-border activities, in particular significant cross-border activities.

Supervisory authorities should ensure that at least 60% of the Member State’s life insurance and reinsurance market and at least 60% of its non-life insurance and reinsurance market are subject to pre-emptive recovery planning requirements. Small and non-complex undertakings should not be subject to pre-emptive recovery planning requirements, except where a supervisory authority considers that such an undertaking represents a particular risk at national or regional level.

Insurance and reinsurance undertakings should update their pre-emptive recovery plans at least every two years.

Concerning group pre-emptive recovery plans , Member States should ensure that the group supervisor has the power to require that the ultimate parent undertaking of a group draw up and submit to the group supervisor a group pre-emptive recovery plan.

Resolution plans

The amended text stated that the resolution authorities should draw up resolution plans for insurance and reinsurance undertakings for which they assess that it is more likely, when compared to other undertakings under their remit, that resolution action would be in the public interest in the event of the failure of the undertaking concerned, or for which the authorities assess that they perform a critical function. That assessment should take into account, as a minimum, the necessity to achieve resolution objectives and the undertaking’s size, business model, risk profile, interconnectedness, substitutability and in particular its cross-border activity.

Based on the assessment, resolution authorities should ensure that at least 40% of the Member State’s life insurance and reinsurance market and 40 % of its non-life insurance and reinsurance market, are subject to resolution planning.

Resolution

The resolution objectives are: (a) protecting the collective interest of policy holders, beneficiaries and claimants; (b) maintaining financial stability, in particular by preventing contagion and by maintaining market discipline;

(c) ensuring the continuity of critical functions; (d) protecting public funds by minimising reliance on extraordinary public financial support.

When pursuing these objectives, resolution authorities should choose those approaches in relation to critical functions that best preserve the continuity of insurance coverage for the policy holders. They should prioritise the use of financing sources other than the budget of the Member States.

In order to provide for a clear delineation of responsibilities between supervisory and resolution authorities, it should be specified that, once resolution action has been taken by the resolution authority, it is the resolution authority that becomes ultimately responsible for the effective implementation of such resolution action. From that moment in time, the supervisory authority should therefore refrain from adopting any measures with respect to the undertaking under resolution without the prior agreement of the resolution authority. Similarly, the resolution authority should have the power to terminate, in the context of resolution action, any measure taken by the supervisory authority in case its continuation would hinder the application of resolution tools.

European resolution colleges

Group-level resolution authorities should establish resolution colleges. Where a third-country insurance or reinsurance undertaking or third-country parent undertaking has Union subsidiary undertakings established in two or more Member States, or two or more Union branches of a third country undertaking that are regarded as significant by two or more Member States, the resolution authorities of the Member States where those Union subsidiary undertaking are established or where those Union branches of a third country undertaking are located may establish a European resolution college .

Financing arrangements

Each Member State should establish one or more financing arrangements to ensure that the resolution authority has at its disposal adequate funds through ex-ante or ex-post contributions or a combination thereof from insurance and reinsurance undertakings authorised in that Member State and from Union branches of third-country undertakings located in the territory of that Member State to cover at least the payment of the difference to shareholders, policy holders, beneficiaries, claimants or other creditors referred to in this Directive.

Member States may provide for the possibility to use financing arrangements also to cover other costs associated with the use of resolution tools, insofar as the use of financing arrangements is necessary for the achievement of the resolution objectives.

The Committee on Economic and Monetary Affairs adopted the reported by Markus FERBER (EPP, DE) on the proposal for a directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012.

As a reminder, the aim of this proposed directive is to make the insurance and reinsurance sector more resilient and enhance the protection of policyholders, taxpayers, the economy and financial stability within the EU. Moreover, the new directive will provide a framework for cases where the Solvency II regime does not prevent the failure of an insurance undertaking. The Insurance Recovery and Resolution Directive (IRRD) will provide harmonised resolution procedures, making failures of insurance companies easier to handle, especially in a cross-border context.

The committee responsible recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the proposal as follows:

Scope

The amended text reinforces the role of the European Insurance and Occupational Pensions Authority. The EIOPA should be informed of any additional or stricter rules adopted by Member States, other than those laid down in the directive.

Resolution plans

Members added that the resolution plans should also contain a preliminary assessment of the feasibility and credibility of the winding up under normal insolvency proceedings or of resolution actions. Resolution authorities should draw up resolution plans for each insurance and reinsurance undertaking that is subject to pre-emptive recovery planning requirements provided they assess that the public interest would be positive in the event of a failure or for which a critical function exists. This assessment should be made on the basis of the resolution objectives and criteria such as size, business model, risk profile, interconnectedness, substitutability and cross-border activity .

Group resolution plans

The amended text suggested that Member States should ensure that group resolution authorities draw up group resolution plans to be activated in case the ultimate parent undertaking or one of the material undertakings within the group risks experiencing a significant deterioration of its

financial position.

Financial arrangements

Financing arrangements should be established in each Member State to compensate policy holders of insurance and reinsurance undertakings authorised in that Member State. While directly absorbing the losses of an insurance company should be avoided, it should be possible to use such financing arrangements to finance other costs associated with the use of resolution tools as a last resort, to the extent necessary to achieve the resolution objectives and insofar as the resolution principles are fully respected. Acknowledging the diversity in insurance markets, Member States should be given some flexibility in relation to the precise arrangements of external financing as long as the availability of sufficient liquidity to guarantee compensation within a reasonable timeframe is ensured. A Member State should impose a contribution obligation only to insurance and reinsurance undertakings authorised in that Member State and to Union branches of a third country undertaking which are established in its territory.

Policy-holder protection

The report stated that the global financial crisis showed the need for high levels of protection for policy holders. The introduction of insurance guarantee schemes (IGSs) should therefore be advanced. A harmonised framework of national insurance guarantee schemes would help to minimise reliance on public funds by providing equal protection to policy holders and beneficiaries in the event of an insurer’s insolvency. The current lack of homogeneity between national IGSs leads to unequal treatment of policy holders and beneficiaries of to the same insurer, as demonstrated by recent cross-border insurance failures. After sufficient experience in the application of this Directive has been gained, the Commission, after consulting EIOPA, should evaluate and report to the European Parliament and the Council on the possibility of introducing harmonised minimum basic requirements for insurance guarantee schemes in the Union and the steps that would be necessary in order to do so.

Review

By 1 January 2026, the Commission, after having consulted EIOPA, should submit a report to the European Parliament and to the Council on the application of this Directive.

PURPOSE: to establish a European framework for the recovery and resolution of insurance and reinsurance undertakings.

PROPOSED ACT: Directive of the European Parliament and of the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: insurance policies form an integral part of the daily life of European citizens. For many social and economic activities, holding an insurance policy is necessary to protect against potential risks. They also include savings products, which will determine the long-term welfare of their holders. The disorderly failure of insurers can therefore have a significant impact on policy holders, beneficiaries, injured parties or affected businesses. The management of a near-failure or the failure of certain insurers, particularly large cross-border groups, or the simultaneous failure of multiple insurers can also lead to or amplify financial instability.

Although Directive 2009/138/EC (Solvency II Directive) of the European Parliament and of the Council aimed at strengthening the financial system in the EU and the resilience of insurance and reinsurance undertakings, it did not completely eliminate the possibility of failures of such insurance and reinsurance undertakings.

Moreover, there are currently no harmonised procedures at European level for resolving insurers . This results in considerable substantive and procedural differences between the laws, regulations and administrative provisions that govern the failure of insurers in the Member States. A regime is therefore needed to provide authorities with a credible set of resolution tools to intervene sufficiently early and quickly if insurers are failing or likely to fail to ensure a better outcome for policy holders, while minimising the impact on the economy, the financial system and any recourse to taxpayers’ money.

CONTENT: the proposed Directive seeks to harmonise national laws on recovery and resolution of insurers or introduces such a framework if there is none yet, to the extent necessary to ensure that Member States have the same tools and procedures to address failures. The harmonised framework would also safeguard the interests of policy holders and preserve the real economy. It would contribute to financial stability and trust in the internal market for insurance and reinsurance.

The proposal addresses crisis management and provides for a comprehensive package of measures including, inter alia , the following elements:

Prevention and preparedness

The proposal requires insurance and reinsurance undertakings established in the EU and subject to the ‘Solvency II’ regulatory framework to develop preventive recovery plans, in order to be better prepared for a possible crisis and to be able to take prompt remedial action if a crisis occurs.

Set-up of resolution authorities

This proposal requires Member States to set up insurance resolution authorities , equipped with a minimum harmonised set of powers to undertake all the relevant preparatory and resolution actions. The proposal does not specify the particular authority that should be appointed and can therefore be for example national central banks, competent ministries, public administrative authorities or other authorities entrusted with public administrative powers.

Resolution tools

The framework would provide national authorities with resolution tools to intervene early and quickly enough in the event of failure or risk of failure of insurers. These instruments would maintain insurance cover for policyholders, beneficiaries and injured parties and allocate losses in a fair and predictable manner.

Cross-border group resolution

To take account of the cross border nature of some insurance groups and create a comprehensive and integrated framework for recovery and resolution actions in the Union, resolution colleges will be established under the leadership of the group resolution authority and with the participation of the European Insurance and Occupational Pensions Authority (EIOPA). The objective of the colleges is to coordinate preparatory and resolution measures among national authorities to ensure optimal solutions at Union level.

Changes to the Solvency II Directive

This proposal clarifies supervisory authorities’ powers to impose preventive measures to insurers in cases of deteriorating financial positions or breaches of regulatory requirements, to avoid the escalation of the problems at a sufficiently early stage of deterioration.

Penalties

In order to ensure compliance by insurers, those who effectively control their business and their administrative, management or supervisory body with the obligations deriving from this proposal, Member States should provide for administrative sanctions and other administrative measures which are effective, proportionate and dissuasive. EIOPA should maintain a central database of all administrative sanctions.

Implementation

The proposal requires Member States to transpose the recovery and resolution rules in their national laws within 18 months from the entry into force of this proposal. National authorities should report to EIOPA on the application of simplified obligations on an annual basis, which EIOPA should in turn disclose.