On 27 November 2024, the EU legislator adopted the Directive (EU) 2025/1 of 27 November 2024 establishing a framework for the recovery and resolution of insurance and reinsurance undertakings (the “IRRD”).
The IRRD must be transposed into national law, including Belgium, by 29 January 2027, with its provisions becoming applicable as from 30 January 2027. The IRRD will provide a dedicated legal framework for the recovery and resolution of insurance and reinsurance companies (“insurers/reinsurers”) across EU Member States.
The IRRD is modelled after the earlier established Bank Recovery and Resolution Directive (“BRRD”), which already applies to banks and certain investment firms.
1. Goals of the irrd
The IRRD has two main objectives:
- Harmonising the substantive and procedural legal frameworks across Member States in managing distressed or failing insurance groups, thereby eliminating competitive distortions, mitigating financial exposure, and strengthening financial stability; and
- Ensuring the protection of policyholders by safeguarding the continuity of critical insurance functions through the implementation of standardised recovery and resolution tools for effective crisis management.
2. Scope of application
The IRRD will apply to EU insurers/reinsurers subject to Directive 2009/139/EC (“Solvency II”), along with their EU-based parent entities, insurance holding companies, mixed financial holding companies, and branches of non-EU insurers/reinsurers that meet specific criteria.
Additionally, the IRRD establishes rules and procedures for critical service providers when an insurer or reinsurer undergoes resolution.
3. Pre-emptive recovery planning
Companies in scope will be expected to draw up and keep updated pre-emptive recovery plans. This duty will apply both to standalone insurers/reinsurers, as well as those that form a group.
Pre-emptive recovery plans outline measures to restore financial viability in the event of significant deterioration, without reliance on public financial support. Such plan must contain the following elements:
- Summary of the key elements of the plan;
- Description of the company or the group;
- Set of quantitative and qualitative indicators (capital adequacy, liquidity, asset quality, and macroeconomic conditions) that would trigger the activation of remedial actions;
- Remedial actions; and
- Measures to be taken to restore the Solvency II capital requirements, if applicable.
The exact requirements for non-group companies will depend on their size, business model, risk profile, interconnectedness, substitutability, their importance for the economy, and cross-border activities in particular.
For group companies, the ultimate parent company of the group will have to draw up and keep updated the pre-emptive recovery plans whilst ensuring coordination and consistency of proportionate measures at the group and entity level.
Smaller and less complex entities may be exempt unless they pose specific national or regional risks.
Supervisory authorities will review plans every two years or following significant structural or financial changes, requiring revisions if deficiencies are identified.
4. Resolution plans
Resolution plans will also need to be put into place.
The resolution plan is a plan containing resolution action for when an insurance or reinsurance company is failing or likely to fail, there is no reasonable prospect that any alternative measure would prevent failure within a reasonable timeframe and action is necessary in the public interest.
Under the IRRD, a company is considered to be failing if it is unable to meet financial requirements, comply with regulatory conditions, fulfil obligations to policyholders, or avoid reliance on public funds. Resolution is only pursued when it offers a more effective alternative to liquidation.
A resolution plan contains, amongst others, the following elements:
- Summary of the key elements of the plan;
- A demonstration of how critical functions and core business lines could be legally and economically separated, to the extent necessary, from other functions so as to ensure continuity upon the failure of the undertaking;
- Identification of those assets which would be expected to qualify as collateral;
- Description of the company or the group;
- Detailed description of the assessment of resolvability, including the assessment of feasibility and credibility of winding up under normal insolvency proceedings;
- Detailed description of the different resolution strategies that could be applied in light of the different possible scenarios and the applicable timescales;
- Plan for communicating with the media and the public; and
- Description of essential operations and systems for maintaining the continuous functioning of the undertaking’s operational processes.
Resolution authorities (after having consulted the supervisory authority) will have to draw up a resolution plan for each standalone insurance or reinsurance company, as well as for each group, for those for which they assess that it is more likely that resolution action would be in the public interest or for which the resolution authorities assess that they perform a critical function.
For insurance groups, resolution plans will be managed at the group level by the authority overseeing the parent company.
Small and non-complex companies are not being subject to resolution planning requirements, except where the resolution authority considers that such company represents a particular risk at national or regional level.
This new duty will not only affect resolution authorities. Indeed, resolution planning requires insurers/reinsurers to collaborate with authorities in drafting, maintaining, and periodically revising these plans. As part of this process, insurers/reinsurers undergo a resolvability assessment to identify any barriers to resolution and are given four months to propose corrective measures.
Resolution authorities must also review and revise these plans at least every two years or whenever significant structural or financial changes occur. Insurers/reinsurers are responsible for informing the resolution authorities of any developments requiring an update to maintain the effectiveness of resolution strategies.
5. Powers of national resolution authorities
The IRRD grants national resolution authorities (“NRAs”) the necessary powers to manage failing insurers/reinsurers. They can for instance require entities to provide any information required, assume control of distressed insurers/reinsurers, prohibit to underwrite new insurance or reinsurance business, transfer shares or other types of ownership, transfer rights, assets or liabilities to ensure an orderly resolution. NRAs can also restructure liabilities, including converting debt into equity or modifying contractual obligations.
NRAs can enforce temporary restrictions or redemption on policyholder redemptions and ensure operational continuity by requiring related entities to continue providing critical services. They also have the authority to coordinate resolution measures across EU Member States and impose compliance on assets governed by third-country laws. By removing or replacing senior management where necessary, authorities aim to improve governance and mitigate further financial deterioration.
Lessons learned from the BRRD, which is now well known by most credit institutions and investment firms in scope, will probably be relevant to the development of the IRRD. For better or worse, it would seem that insurance regulation at EU level generally follows suit to banking and investment developments.
