Introduction of the Insurance Recovery and Resolution Directive (IRRD) in November 2024
Earlier last month, in early November 2024, the Council of the European Union adopted legislation aimed at introducing new rules on insurance recovery and resolution. The Insurance Recovery and Resolution Directive (“IRRD”) is designed to create a framework for a pre-emptive recovery planning and resolution regime to ensure that insurers and relevant authorities in the European Union are better prepared for situations of significant financial distress and to facilitate early and quick intervention of the authorities, even across borders. The IRRD will establish harmonised recovery and resolution tools and procedures, with enhanced cross-border cooperation between national authorities with the intention to create an anticipatory approach to protect insurance policyholders, minimise the impact on the economy and the financial system and avoid recourse to taxpayers’ money.
Insurance and reinsurance companies that fall within scope will have to draw up and submit pre-emptive recovery plans to national authorities established for the purpose by member states and vested with preventative powers to intervene. Resolution authorities will also have to draw up resolution plans for insurance and reinsurance undertakings and groups which will provide the authorities with resolution tools and procedures to address failures, notably in a cross-border context.
The IRRD is expected to be published in the Official Journal of the European Union shortly and will enter into force twenty days after the date of publication. The new rules will then start to apply twenty-four months later. New technical standards and guidelines will also be published over the coming two years. The European Insurance and Occupational Pensions Authority has alluded that although the IRRD will not explicitly provide for a transitional period for implementation, it will not require recovery and resolution plans to be in place immediately. As a necessary first step, national authorities must define which insurers and reinsurers will be subject to these requirements and will be required to implement recovery and resolution plans. Insurers would thereafter be given adequate time to draw up the necessary plans.
