Member states’ representatives agreed a negotiating mandate (general approach) on the Insurance Recovery and Resolution Directive (IRRD).
This proposal will reinforce the Solvency II Directive, in the aim to make the insurance and reinsurance sector more resilient and enhance the protection of policyholders, taxpayers, the economy and financial stability within the EU.
The European Council’s position paves the way for negotiations with the European Parliament to start in the new year, in view of an agreement on the final text.
This is an important step forward to reduce risks for policyholders and taxpayers, and strengthen financial stability and trust in the internal market.
The new directive will provide a framework for cases where the Solvency II regime does not prevent the failure of an insurance undertaking.
The Solvency II framework generally works well, but approximately 10 EU insurers fail every year, with significant impacts on policyholders. 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.
For many social and economic activities, holding an insurance policy is necessary to protect against potential risks. The disorderly failure of insurers can have a significant impact on policy holders, beneficiaries, injured parties or affected businesses. It can further lead to or amplify financial instability and impact the real economy as a whole or require exceptional recourse to public funds.
There are currently no harmonised procedures at European level for resolving insurers, with substantial differences between member states leading to uneven levels of protection for policy holders and beneficiaries.
The IRRD would introduce a harmonised regime at European level for resolving insurers, to provide national authorities with similar resolution tools and procedures to address failures.
The proposal would require member states to set up insurance resolution authorities, ensure effective cooperation across borders, and grant the European Insurance and Occupational Pensions Authority (EIOPA) a coordinating role.
The IRRD would ensure a level-playing field across member states and safeguard policy holders’ interests. It would moreover minimise the impact on the economy, the financial system, and any recourse to taxpayers’ money, contributing to financial stability and trust in the internal market for insurance and reinsurance.
In its position the Council welcomes the value of introducing a harmonised minimum European framework for the recovery and resolution of insurance undertakings, provided that this framework is proportionate, adapted to the insurance sector and contributes adequately to the protection of policyholders and the maintenance of financial stability in the European Union’s single market.
It is important to establish common rules and at the same time leave sufficient flexibility to national authorities to accommodate the specificities of their insurance markets and address the characteristics of the individual case.
While national authorities need to have sufficient powers to efficiently deal with insurance failures, safeguards have to be put in place to ensure fair treatment of all stakeholders, such as the principle that no creditor should be worse off in resolution compared to a ‘normal’ insolvency procedure.