Ireland awaits the new EU Insurance Recovery and Resolution Directive

Tuesday 9 August 2022

Eoin Caulfield

William Fry, Dublin


Hannah Garvey

William Fry, Dublin


The new European Union (EU) Recovery and Resolution Directive (the IRRD) is close to bringing into effect, for the first time at an EU level, a unified recovery and resolution framework for failed or failing insurers and reinsurers. After adoption, the Directive will be implemented in each Member State and this is expected by the end of 2024.


The aim of the IRRD is to grant national authorities powers where an insurance or reinsurance undertaking, or an associated holding company, is failing or is likely to fail. Implementing such a regime was an agenda item from the 2008 financial crisis. Indeed, its measures mirror aspects of the 2014 EU Bank Recovery and Resolution Directive of application to credit institutions.

The Directive will supplement existing national regimes in Member States, including those concerning Ireland. In this jurisdiction, there are existing administrative processes for stressed (re)insurers through the Insurance (No 2) Act 1983. This Act gives powers to the Central Bank of Ireland, as the Irish financial services regulator, to petition the Irish High Court for the appointment of an administrator. The administrator then steps into the place of the directors and, for the duration of the process, claims against a (re)insurer can be stayed. Other potential powers exist through the Companies Act 2014, such as the examinership process, as well as some recovery and resolution mechanisms under the Irish regulations implementing the Solvency II Directive.

The new measures through the IRRD will supplement the position and provide, for all EU (re)insurers including Irish ones, common ‘tools’ for dealing with stressed (re)insurers and an alternative to normal insolvency proceedings. A further feature of the IRRD is the requirement for EU (re)insurers and associated holding companies to include new ‘stay recognition’ and ‘bail-in’ clauses in relevant contracts in order to mitigate relevant losses were a stress scenario to arise.

The overall objective of the IRRD is to improve protection for insureds and reinsurance counterparties while simultaneously protecting taxpayers from having to bail out distressed undertakings. However, to achieve this, there will now be on-going increased administrative burdens on (re)insurers and related entities.

Existing status

The European Insurance and Occupational Pensions Authority (EIOPA) is the EU’s supervisory authority whose remit extends to (re)insurers. In progressing the draft directive through the EU institutions, the EIOPA published a consultation paper in October 2019. The paper, to which William Fry (through the Irish Department of Finance’s own consultation) provided commentary, references the current ‘patchwork quilt’ of national approaches to recovery and resolution measures. Although some Member States have progressive local law measures, others function with limited insolvency procedures and only some or no pre-emptive planning elements.

The EIOPA observed a need for a two-stage recovery and resolution approach for (re)insurers which have breached their solvency capital requirement. It also highlights the need for a common EU approach, to ensure continuity across Member States.

The Directive is likely to be voted on in the European Parliament by early 2023 while still being able to be altered in the interim. After adoption at EU level, there will then be the need in Ireland and each of the other Member States, to bring the IRRD into effect through domestic implementing measures.

If the Parliament decides to adopt the Directive, the IRRD should be brought into law pending Member State implementation with that period beginning in the third quarter of 2024.

Effects of the IRRD

The implementation of the new obligations under the IRRD will necessitate a substantial amount of work by (re)insurers and their groups. Member States which do not currently have similar legislation will feel the greatest impact.

Although the metrics appear still for final settlement, as envisaged, for at least 80 per cent of relevant (re)insurers within each EU ‘national market’ there will have to be pre-emptive recovery planning measures in place, with a 70 per cent threshold then for resolution measures. Tests will be by reference to premium levels written as well as risk profile, size, business model, cross-border activity and substitutability.

The IRRD will apply to a broad range of entities, not only EU (re)insurers which are subject to Solvency II but also taking in aspects affecting EU insurance holding companies and EU mixed financial holding companies. EU branches of non-EU insurance companies will also be affected by some of the proposed provisions.

Each Member State will be required to designate a national ‘resolution authority’ which will be given a set of powers. The authorities will then aim to champion the ongoing regulatory relationships between (re)insurers and their groups. If there is an existing authority in a Member State, there would have to be arrangements made to avoid potential conflicts of interest and allow for effective independence within the resolution function. The IRRD also requires the establishment of ‘resolution colleges’ to help with cross-border concerns and decision making. A group’s overall resolution authority would chair the college and would include the EIOPA, the resolution authorities of the home Member State of all group (re)insurers and Member States in which the companies have considerable cross-border activities.

Function of Member State authorities

The resolution authority in each Member State must guarantee cooperation from (re)insurers and supervisory authorities on resolution planning. The relevant authorities will be supplied with technical standards which will be drafted by the EIOPA, laying out the overall approach. In the first instance, each resolution authority will apply remedial actions and, if these fail, the IRRD sets out a set of ‘tools’ with the following five-steps:

  1. solvent run-off (ie, no new business);
  2. sale of business;
  3. bridge undertaking (ie, public entity controlled by resolution authority);
  4. asset and liability separation (ie, assets and liabilities transferred to asset management vehicles controlled by public authorities); and
  5. write-down and conversion (ie, bail-in).

For the tools to be effective, national legislators must ensure that resolution authorities have sufficient powers. These powers will include being able to take control and request information. An important factor will be taking the earliest possible intervention and therefore avoiding always ending-up in insolvency proceedings. This should mitigate losses generally. The IRRD intends to protect stakeholders, although shareholders and creditors should not be worse off than under a bankruptcy strategy.

An appraisal must be made if a (re)insurer needs a resolution or recovery mechanism. It should be established if the appropriate approach is either by liquidation, usual insolvency proceedings or the resolution plan which the (re)insurer will have put in place. Technical standards to measure resolvability will be drafted by the EIOPA and the resolution authorities will have to carry out such an assessment during resolution planning. Powers will be given to resolution authorities such that an inability to resolve the position sufficiently should never be reached and instead the entity can be placed into resolution before the (re)insurer's Minimum Capital Requirement (ie, its absolute ‘minimum’) is ever affected.


The proposal to harmonise the EU resolution regimes through the IRRD should create a level playing field across Member States. All industry stakeholders should ultimately benefit through the limiting of occasions where (re)insurers end-up having to be bailed out by the taxpayer. Whilst there will be significant administration requirements, it is intended that the overall benefit will outweigh this greater administrative burden. The implementation of the IRRD can be expected towards the end of 2024.