Public

Application Paper on
Resolution Powers and Planning

23 June 2021

PublicApplication Paper on Resolution Powers and Planning
Adopted by the IAIS Executive Committee - June 2021

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About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions. The
mission of the IAIS is to promote effective and globally consistent supervision of the insurance
industry in order to develop and maintain fair, safe and stable insurance markets for the benefit
and protection of policyholders and to contribute to global financial stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision andinsurance markets.
The IAIS coordinates its work with other international financial policymakers and associationsof supervisors or regulators, and assists in shaping financial systems globally. In particular,
the IAIS is a member of the Financial Stability Board (FSB), member of the Standards Advisory
Council of the International Accounting Standards Board (IASB), and partner in the Access to
Insurance Initiative (A2ii). In recognition of its collective expertise, the IAIS also is routinely
called upon by the G20 leaders and other international standard setting bodies for input on
insurance issues as well as on issues related to the regulation and supervision of the global
financial sector.
Application Papers provide supporting material related to specific supervisory material (ICPsor ComFrame). Application Papers could be provided in circumstances where the practicalapplication of principles and standards may vary or where their interpretation andimplementation may pose challenges. Application Papers do not include new requirements,
but provide further advice, illustrations, recommendations or examples of good practice tosupervisors on how supervisory material may be implemented. The proportionality principle
applies also to the content of Application Papers.
International Association of Insurance Supervisors
c/o Bank for International Settlements
CH-4002 Basel
Switzerland
Tel: +41 61 280 8090 Fax: +41 61 280 9151
www.iaisweb.org
This document was prepared by the Resolution Working Group in consultation with IAIS
Members.
This document is available on the IAIS website (www.iaisweb.org).
© International Association of Insurance Supervisors (IAIS), 2021
All rights reserved. Brief excerpts may be reproduced or translated provided the source isstated.

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Contents
Acronyms .............................................................................................................................. 5
1

2

Introduction .................................................................................................................... 6
1.1

Objectives and background..................................................................................... 6

1.2

Scope of application................................................................................................ 7

1.3

Proportionality ......................................................................................................... 7

1.4

Terminology ............................................................................................................ 8

1.5

Inputs ...................................................................................................................... 9

1.6

Structure ............................................................................................................... 10

Objectives and concepts of resolution of insurers ........................................................ 10
2.1

Concepts .............................................................................................................. 10

2.2

Objectives of a resolution framework .................................................................... 10

3

Entry into resolution ..................................................................................................... 13

4

Resolution powers ....................................................................................................... 15

5

4.1

Taking control ....................................................................................................... 17

4.2

Prohibition of certain payments and transfers ....................................................... 18

4.3

Withdrawal of licence to write new business and run-off ....................................... 20

4.4

Restructuring mechanisms.................................................................................... 21

4.5

Suspension of rights ............................................................................................. 24

4.6

Liquidation ............................................................................................................ 25

4.7

Resolution powers in ComFrame .......................................................................... 26

4.8

Safeguards ........................................................................................................... 29

Resolution plans .......................................................................................................... 30
5.1

Objective ............................................................................................................... 30

5.2

Scope of application and proportionality................................................................ 30

5.3

Information needs ................................................................................................. 31

5.4

Key elements of a resolution plan ......................................................................... 33

5.4.1

Executive Summary ....................................................................................... 33

5.4.2

Description of the insurer ............................................................................... 34

5.4.3

Entry into resolution ....................................................................................... 34

5.4.4

Analysis of potential financial stability impacts of failure ................................. 35

5.4.5

Resolution strategy ........................................................................................ 36

5.4.6

Operational aspects ....................................................................................... 38

5.4.7

Resolution planning governance .................................................................... 39

5.4.8

Communication strategy ................................................................................ 40

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5.4.9
6

Resolvability Assessments ........................................................................................... 42
6.1

7

Impact on the PPS ......................................................................................... 41

Resolving impediments ......................................................................................... 43

Cooperation and Coordination ..................................................................................... 44
7.1

Cooperation and coordination in normal times ...................................................... 45

7.2

Cooperation and coordination in times of crisis ..................................................... 46

7.3

Coordination agreements ...................................................................................... 47

Annex:

Examples of relevant existing and proposed legislation on resolution powers ... 49

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Acronyms
CMG

Crisis Management Group

ComFrame
FMI

Common Framework for the Supervision of Internationally Active InsuranceGroupsFinancial Market Infrastructure

FSB

Financial Stability Board

IAIS

International Association of Insurance Supervisors

IAIG

Internationally Active Insurance Group

ICP

Insurance Core Principle

KAs

Key Attributes of Effective Resolution Regimes for Financial Institutions

KAAM

Key Attributes Assessment Methodology

MCR

Minimum Capital Requirement

MIS

Management Information System(M)MoU(Multilateral) Memorandum of Understanding

NCWOL

No Creditor Worse Off than in Liquidation

PCR

Prescribed Capital Requirement

PPS

Policyholder Protection Scheme

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1

Introduction

1.1

Objectives and background1.
This Application Paper on Resolution Powers and Planning aims to provide supporting
material on supervisory practices related to resolution, which is defined in the IAIS Glossary1as “actions taken by a resolution authority towards an insurer that is no longer viable, or is
likely to be no longer viable, and has no reasonable prospect of returning to viability.” Inparticular, it provides background for the application of ICP 12 (Exit from the Market and
Resolution), including the ComFrame standards and guidance, and is also relevant to ICP 25(Supervisory Cooperation and Coordination), including the ComFrame standards andguidance (related to crisis management planning).2 These materials were adopted at the IAIS
Annual General Meeting in November 2019.
2.

Application Papers do not set new standards or expectations. This Paper aims to:Provide support to supervisors and/or resolution authorities on the practical applicationof resolution powers, as well as on cooperation and coordination between authorities
when planning for, and exercising, such powers;
Provide support with regard to resolution planning, which may be beneficial tosupervisors, resolution authorities and/or insurers, depending on the circumstances
within a jurisdiction; andProvide examples to illustrate the application of standards and guidance relevant toresolution.

3.
The Paper also aims to address issues that were identified during the development ofsupervisory material in ICP 12 and ComFrame, including feedback received from IAIS
Members and stakeholders. Issues that were identified, include:

Further guidance and clarifications around expectations for resolution planning;
Explanations and examples of the application of resolution powers;
The practical application of proportionality in the case of resolution; andThe role of policyholder protection schemes (PPS) in resolution. This Paper discusses
the role that a PPS, if established within a jurisdiction, may have in relation to certain
resolution powers as well as in relation to the resolution authority. It does not, however,
aim to provide a comprehensive overview on the role of PPSs in resolution. The IAIS
plans to start the development of an Issues Paper on this topic in the second half of
2021.

4.
While certainly important for resolution, issues around valuation and funding in
resolution are not discussed in detail in this Paper. These issues are also closely linked to
ICPs 14 (Valuation) and 17 (Capital Adequacy). Since ICPs 14 and 17 are scheduled to berevised in the coming years (during the monitoring period of the Insurance Capital Standard
Version 2.0), developing detailed guidance in this Paper at this time would not be appropriate.

1 https://www.iaisweb.org/page/supervisory-material/glossary
2 https://www.iaisweb.org/page/supervisory-material/insurance-core-principles-and-comframe

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1.2

Scope of application

5.
This Paper and most of its concepts are relevant to the business of primary insurers
and reinsurers,3 as well as to both insurance legal entities and insurance groups. Its
recommendations are applicable across supervisory approaches among jurisdictions. It
complements the Application Paper on Recovery Planning approved by the IAIS in 2019.4
6.
This Paper also provides guidance to certain additional elements that are set out in
ComFrame, which focuses on IAIGs only, in particular the requirements related to resolution
planning, resolvability assessments and crisis management groups (CMGs). These sections
are thus intended to be particularly useful for supervisors and/or resolution authorities of IAIGs
where prior planning for resolution and cross-jurisdictional coordination may be beneficial.
7.

The application of the relevant supervisory material is depicted in table 1:
Table 1: Scope of Application: resolution-related supervisory material
Thematicarea
Resolution
framework

Resolution
planning

Resolution
powersScope of application
All
IAIGs
insurers

High-level description

Location

Resolution framework

ICP 12●●

Preparing for resolution

ICP 12.3○○

Resolution plan andresolvability assessment
Management information
systemResolution powers

CF 12.3.a &CF 12.3.b
CF 12.3.c

Specific powers for IAIGs

CF 12.7.a

ICP 12.7

○
●
●

●
●

Coordination of crisis
ICP 25.7
Crisis●●management management preparations
andEstablishment of crisis
CF 25.7.a &●planning
management groups
CF25.7.b[. .] Not applicable;[○] Applicable / required as necessary only (for instance based on the nature, scale andcomplexity of the (activities of) the insurer); and[●] Required (these represent minimum requirements as provided in the IAIS supervisory
material. Jurisdictions can go beyond these minimum requirements and for instance extend
the scope of certain requirements as appropriate).
1.3

Proportionality

8.
This Application Paper should be read in the context of the proportionality principle, as
described in the Introduction to the ICPs, which provides supervisors and/or resolution
authorities “the flexibility to tailor their implementation of supervisory requirements and theirapplication of insurance supervision to achieve the outcomes stipulated in the Principle

3 See Box 1 in section 2 for a short description of considerations on the resolution of reinsurers.
4

https://www.iaisweb.org/page/supervisory-material/application-papers/file/87519/application-paperon-recovery-planning
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Statements and Standards”. In particular, proportionality allows ICP 12 to be translated into ajurisdiction’s resolution framework in a manner appropriate “to its legal structure, market
conditions and consumers; and allows the supervisor and/or resolution authority to increaseor decrease the intensity of supervision according to the risks inherent to insurers, and therisks posed by insurers to policyholders, the insurance sector or the financial system as awhole.”
9.
Where appropriate, the Paper provides practical examples of the application of the
proportionality principle, notably as regards resolution planning.
1.4

Terminology

10.
In this Paper, terms have the same meaning as set out in the IAIS Glossary. To
facilitate the understanding of the Paper, definitions of terms that are used frequently in the
Paper are shown in the table below.
11.
When this Paper refers to an “insurer”, in line with the Introduction to the ICPs, thismeans insurance legal entities and insurance groups, including insurance-led financial
conglomerates, and refers to the business of both primary insurers and reinsurers.
Table 2: List of resolution-related terms (in IAIS Glossary and ICP Guidance material)
Term

Definition and/or additional guidance

Essential
services andfunctions

Services and/or functions that are significant for the continuation of(all or parts of) the insurer (for example, shared services, such as
information technology services and outsourced functions).5

Liquidation

A process to terminate operations and corporate existence of theentity through which the remaining assets of the insurer will be
distributed to its creditors and shareholders according to theliquidation claims hierarchy. Branches can also be put into liquidation
in some jurisdictions, separately from the insurance legal entity they
belong to.

No creditor worse Principle that requires that, in a resolution action other than a
off than inliquidation, creditors should be entitled to compensation if they receive
liquidation
less than they would have received if the insurer was liquidated.
(NCWOL)
Portfolio transfer

Transfer of one or more policies together with, when relevant, theassets backing those liabilities.

Resolution

Actions taken by a resolution authority towards an insurer that is nolonger viable, or is likely to be no longer viable, and has no reasonable
prospect of returning to viability.

Resolution
authority

A person that is authorised by law to exercise resolution powers overinsurers.

5 This term should not be confused with those financial and economic functions of an insurer that need

to be continued to achieve the resolution objectives (notably: policyholder protection and financial
stability), which are discussed in section 5.
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This term is used when it involves resolution powers and/or processes
after resolution has been instituted: this includes supervisors acting
under their resolution powers.
Depending on the jurisdiction, this term may include supervisors,other governmental entities or private persons (including
administrators, receivers, trustees, conservators, liquidators, or otherofficers) or courts authorised by law to exercise resolution powers.
Resolution planA plan that identifies in advance options for resolving all or part(s) of
an insurer to maximise the likelihood of an orderly resolution, thedevelopment of which is led by the supervisor and/or resolution
authority in consultation with the insurer in advance of any
circumstances warranting resolution.

Run-off

A process under which an insurer ceases to write new business andadministers existing contractual obligations. A ‘solvent run-off’ is theprocess initiated for an insurer that is still able to pay debts to its
creditors when the debts fall due. An ‘insolvent run-off’ is the process
initiated for an insurer that is no longer able to pay debts to its creditors
when the debts fall due.

Supervisor

This term is used when it involves responsibilities and/or roles of the
day-to-day supervisor of an insurer.

Supervisor
and/or resolution
authority

This term is used when it involves responsibilities for planning and/or
initiation of resolution and encompasses supervisors acting in theirpre-resolution roles (eg before a supervisor or resolution authority
institutes resolution and/or obtains any necessary administrative
and/or judicial approvals to do so).

1.5

Inputs12.
This Application Paper relies on public documentation on resolution for insurers,
including material from the Financial Stability Board (FSB), IAIS and IAIS Members. It also
benefits from the inputs from 22 IAIS Members, who participated in a Member Survey in Q4
2019 related to resolution frameworks, resolution planning, resolution powers and PPSs.6
Since the supervisory material in ICP 12 and ComFrame was adopted during that same
period, the implementation of resolution frameworks is still evolving.
13.
The Paper also benefited from the feedback received during a stakeholder
teleconference that was held on 21 April 2020 and from feedback received during the public
consultation from 9 November 2020 until 5 February 2021.
14.
The FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (“KeyAttributes” or “KAs”) set out the core elements that the FSB considers necessary for aneffective resolution regime.7 The ICPs and ComFrame material, as well as this Paper, have
6 Inputs were received from IAIS Members from the following jurisdictions: Australia, Bermuda, Brazil,

British Virgin Islands, Chile, France, Germany, India, Ireland, Italy, Japan, Malaysia, The Netherlands,
Norway, New Zealand, Portugal, Russia, Saudi Arabia, Singapore, South Africa, Turkey, United
Kingdom, United States of America.
7 See https://www.fsb.org/wp-content/uploads/r_141015.pdf. In August 2020, the FSB published the
Key Attributes Assessment Methodology (KAAM) for the Insurance Sector; a methodology for
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been informed by the FSB Key Attributes to the extent appropriate. It should be noted howeverthat the scope of application of the FSB Key Attributes differs from the scope of the ICPs and
ComFrame. The Key Attributes are designed for financial institutions, including insurers, that
could be systemically significant or critical if they fail, and certain specific Key Attributes are
required only for global systemically important financial institutions. The ICPs and ComFrame,instead, are targeted at the insurance sector as a whole, and IAIGs only, respectively.
1.6

Structure15.
The remainder of the Paper is structured as follows. Section 2 sets the scene bydiscussing the objectives and concepts of resolution. Section 3 discusses concepts aroundpoint of non-viability and entry into resolution. Sections 4, 5 and 6 provide further guidance
and practical examples around, respectively, resolution powers, resolution planning andresolvability assessments. Section 7 deals with coordination and cooperation amongst
involved authorities.

2

Objectives and concepts of resolution of insurers

2.1

Concepts

16.
As explained in the introductory guidance of ICP 12, exit from the market refers to thecessation of an insurer’s business, either in part or in whole. Insurers may be required by thesupervisor and/or resolution authority to exit from the market, and that insurer may be“resolved”. Such a situation occurs when a troubled insurer is no longer viable, or is likely to
be no longer viable, and has no reasonable prospect of returning to viability in its current form.
As such, resolution can be seen as a final step taken by the supervisor and/or resolution
authority, where all other preventive or corrective measures are inadequate to preserve or
restore an insurer’s viability (see ICP 10 (Preventive Measures, Corrective Measures andSanctions)).
17.
Resolution powers may be used in combination; for example, where parts of the insurer
are put in run-off, parts are liquidated, and/or parts are transferred to another insurer. Bothduring and after resolution, the insurer continues to be subject to applicable laws andregulations. This is particularly the case for a solvent run-off, until all insurance obligations areeither discharged or transferred to a succeeding insurer, or when a restructured entity is fully
restored and re-enters active market participation.
18.
An insurer may also decide to exit from the market on a voluntary basis for business
and/or strategic reasons, even when that insurer is still viable and meets regulatory
requirements. This may include an insurance group’s decision to liquidate one or moreinsurance legal entities. Such a situation is often referred to as “voluntary exit from the market”.
Although such a situation is not the focus of this Paper, insurers, supervisors and resolution
authorities may find certain elements of the Paper helpful.
2.2

Objectives of a resolution framework

19.
As indicated in the introductory guidance of ICP 12, “an orderly process for an insurer’s
withdrawal from the market helps to protect policyholders and contributes to the stability of theassessing the implementation of the KAs in the Insurance Sector, see https://www.fsb.org/wpcontent/uploads/P250820-1.pdf.
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insurance market and the financial system”. ICP 12 therefore requires jurisdictions to have aframework in place for the resolution of insurers which is provided for by legislation (“resolution
framework”). A resolution framework may serve at least the following objectives: policyholder
protection, contributing to financial stability and minimising the reliance on public funding. A
jurisdiction may, at its discretion, choose to rank these resolution objectives.
20.
The protection of policyholders is crucial, and legislation should support the objectiveof protecting policyholders. However, this does not mean that policyholders will be fully
protected under all circumstances and does not exclude the possibility that some losses could
be absorbed by policyholders, to the extent they are not covered by PPSs or othermechanisms. The legislation should provide a scheme for prioritising the payment of claims ofpolicyholders and other creditors in liquidation (liquidation claims hierarchy). Resolution
powers should be exercised in a way that respects the hierarchy of creditors’ claims inliquidation. In a resolution action other than a liquidation, creditors should be entitled tocompensation if they receive less than they would have received if the insurer was liquidated(ie the “no creditor worse off than in liquidation” (NCWOL) principle). The NCWOL principle
may require funding to provide compensation to creditors so that they receive at least as muchas they would have received in a liquidation.
21.
From a financial stability perspective, a disorderly failure of an insurer that issystemically important may cause significant disruption to the financial system and the real
economy. Systemic importance is not synonymous with size. For instance, a disorderly failureof a niche insurer that performs a specialised function to a segment of the economy may cause
a sudden and significant withdrawal of insurance coverage that, at a minimum, would lead toincreasing costs for those policyholders relying on these key services for their day-to-day
business. Likewise, a disorderly simultaneous failure of various insurers that perform similar
activities or have common exposures could, collectively, pose a risk to financial stability. 8
Having a resolution framework in place, and engaging in resolution planning for such insurers,
should limit the risk of a disorderly failure and thus contribute to financial stability.
22.
Finally, resolution should seek to minimise any reliance on public funding. An
expectation that public funding will be available to remedy an insolvency may create a “moral
hazard” and provide an incentive for an insurer to engage in risky behaviour. Furthermore, as
provided in ICP 12, in principle, any public funding used for the resolution of the insurer should
be recouped from the insurance sector in a transparent manner; such recouping strengthensmarket discipline and encourages players to act responsibly.
23.
Based on the outcomes of the Member Survey, in most jurisdictions that have
implemented a resolution framework, these serve a combination of objectives. Consistent withICP 12, the protection of policyholders, contribution to financial stability and minimisingreliance on public funding, are most commonly cited (see Figure 1). Other cited objectives ofresolution frameworks include: to ensure the continuity of critical operations; to reinforce
market discipline; or to prevent large negative effects for society.

8 See section 1 of the IAIS Holistic Framework for the assessment and mitigation of systemic risk in theinsurance sector for a detailed description of possible sources of systemic risk.
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Figure 1: Common objectives of a resolution framework

Protection of policyholders

75%

Contribute to financial stability

88%

Minimise reliance on public funding

Other

55%

30%

Source: IAIS Member Survey, 16 jurisdictions
24.
As noted in paragraph 5, the Paper and most of its concepts are relevant to bothprimary insurers and reinsurers. Nevertheless, some specific features of the business ofreinsurance may need to be considered (see box 1).
Box 1: Considerations related to reinsurers
Specific features of the business of reinsurance that may need to be considered when
exercising resolution powers and when planning for resolution,9 include for instance:In the exercise of the resolution powers (section 4), the nature of the business andof the liabilities needs to be taken into account, particularly with respect to thepower to restructure, write down or limit (re)insurance liabilities;
In the resolution planning for reinsurers (section 5), more focus should be given to
the potential impact of failures on other insurers and financial stability as a whole.
To define the scope of resolution planning for reinsurers, supervisors and/or
resolution authorities should evaluate the impact of the resolution actions on
cedents, third parties and financial stability in general. For instance, it should beassessed whether identified resolution strategies would result in indirect losses forpolicyholders, contagion effect to other insurers, or a material adverse impact on
economic activity. The latter could be caused by a disruption to the continuity ofreinsurance cover and payments, a forced sale of distressed assets and/or by alack of cedents’ confidence; andIn the resolvability assessment (section 6), supervisors and/or resolution authorities
should also assess the concentration risk and to what extent the diversification inreinsurance is affected. The findings of the assessment should be taken into
account when designing the resolution strategy.

9 The considerations listed are largely based on the EIOPA Opinion on the Review of Solvency II,“Background Analysis”, Chapter 12, pages 635-637.
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3

Entry into resolution

25.
ICP 12 requires legislation to provide criteria for determining the circumstances inwhich the supervisor and/or resolution authority initiates resolution of an insurer (“entry into
resolution”). Entry into resolution should be initiated when an insurer is no longer viable(“failing”) or is likely to be no longer viable (“likely to fail”) and has no reasonable prospect ofrecovering to viability. The resolution regime should have a forward-looking trigger that would
provide for entry into resolution before an insurer is balance sheet insolvent (that is, the valueof the assets of the insurer is less than the value of its liabilities) or is unable to pay its
obligations as they come due.
26.
An approach that looks to whether the insurer can run-off, or continue to run-off, could
be more appropriate for the long-term nature of some insurance liabilities, as opposed to an
approach that considers viability on a shorter timeframe. This would allow jurisdictions to entera failing insurer into resolution before the insurer becomes balance-sheet insolvent.
27.
There should be resolution conditions that need to be satisfied in order to justify
initiating resolution. At a minimum, this should include the determination that the insurer isfailing, or is likely to fail, and has no reasonable prospect of recovering to viability. For
example, this includes situations where recovery is unlikely to be achievable within areasonable timeframe. Jurisdictions should articulate clear standards or suitable indicators of
non-viability in the assessment frameworks developed by their relevant authorities to guidedecisions on whether an insurer meets the conditions for entry into resolution. Relevant
authorities should assess such standards or indicators in the context of the actual
circumstances pertaining to the specific situation being considered. To facilitate the resolutionof IAIGs, it is recommended for involved supervisors to share information on, and where
possible, coordinate, the applicable triggers for entry into resolution in their respective
jurisdictions (see section 7).
28.
Box 2 provides illustrative examples of possible resolution conditions in place invarious jurisdictions, based on the Member Survey. Various approaches can be identified:The use of one, or more conditions: Most jurisdictions use a set of conditions, whereby
in some jurisdictions resolution can only be initiated if all conditions are met, whereas
other jurisdictions may have a more flexible approach; andThe use of qualitative guidelines, the assessment of which entails a certain degree ofjudgement, or quantitative (financial) thresholds.

Box 2: Illustrative examples of resolution conditions
Conditions and considerations for determining whether an insurer is failing, or likely to fail,include the following:The relation between available capital resources against the required regulatory
capital:oWhere a quantitative threshold is set, the exact level of this threshold ranges
significantly between jurisdictions, with examples ranging between 70% and150% of the prescribed capital requirement (PCR); or when the insurer is inbreach of the minimum capital requirement (MCR) and there is no
reasonable prospect of restoring compliance with MCR; or

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o












There could be two thresholds: a higher threshold which authorises thesupervisor and/or resolution authority to take action and a lower thresholdwhere action is required;If the insurer has exhausted all management actions, or remaining management
actions are considered to be insufficient to provide a reasonable prospect of
restoring the capital position and return to viability;
If possible recovery measures have been exhausted – either tried and failed or
ruled out as implausible to return the undertaking to viability – or cannot be
implemented in a timely manner;
If the value of the assets of the insurer is less than the value of its liabilities(“balance-sheet insolvent”), or there are objective indications that this will be thecase in the foreseeable future;
If the insurer is, or is likely to be, unable to meet its debt obligations, or otherliabilities as they fall due (“cash-flow insolvent”);
If the significant owner of the insurer is in financial difficulty and the insurer’s
financial condition is being significantly impacted with possible insolvency as aresult;If the insurer does not operate in a manner that is consistent with regulatory
requirements, for instance there are serious governance issues (including criminal
activity or fraud), or risk management and control deficiencies that may significantly
impact the financial position of the insurer;
Continued deterioration in the insurer’s financial condition. Erosion of available
capital resources may be indicated, for instance, by an inability to comply with anorder to increase capital, or by signs of increasing financial distress such as theneed to trigger sales of illiquid assets; andLoss or likely loss of confidence in the insurer by the public, financial markets,policyholders, investors or creditors. This may be characterised by unusually highinsurance policy surrenders, increased difficulty in obtaining or rolling over shortterm funding, a rapid rise in the market spread of its Credit Default Swaps, amaterial downgrade in its credit rating, or rapid and sustained decline in its shareprice or market activity.

Source: IAIS Member Survey
29.
Jurisdictions should consider internal governance arrangements for the decisionmaking processes for determining whether any of the resolution conditions are met. The
resolution authority should consider the appropriate level of seniority required for the decision
taker, whether it should be a single individual or a committee decision, the amount of
supporting evidence provided, and timeframes between the decisions taken for eachresolution condition.
30.
Considerations should also be made to whether other relevant stakeholders should be
consulted or informed for the resolution condition assessments, and whether a jointinstitutional decision could be required for specific conditions under all or some circumstances.
At the same time, consideration should be made to the risk that any undue interference, delay
or disclosure of information, could compromise the swift execution of resolution measures.
Other relevant stakeholders could include the government’s treasury function, the prudential
and/or conduct supervisor (as appropriate and depending on the structure of regulatory andsupervisory authorities in the jurisdiction), the PPS (if there is one) and the courts.

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4

Resolution powers

31.
ICP 12.7 and CF 12.7.a require “legislation to provide an appropriate range of powers
to resolve insurers effectively, and for these powers to be exercised proportionately and withappropriate flexibility”. This section provides guidance for using these resolution powers. Eachof the resolution powers listed in ICP and ComFrame provide a description of its intended
benefits and use and considerations in its application. As appropriate, it also discusses any
specific considerations related to the resolution of an insurance group. The Annex provides
examples of how resolution powers have been enacted in some jurisdictions.
32.
As indicated in section 2.1, there are similarities between preventive and corrective
measures (ICP 10) aimed “to prevent an insurer from being no longer viable, or likely to
become no longer viable”, and resolution powers, which are used only after an insurer has
already passed the point of non-viability. Some of the resolution powers build on thesepreventive and corrective measures. The table below provides a list of powers in ICP 10 and
ICP 12 that are similar or even identical. Those powers that are not listed in the table below
are unique for resolution purposes.
Table 3: Overview of similar powers discussed in ICP 10 and 12
Powers in ICP 10

Powers in ICP 12 and ComFrameProhibiting the insurer from issuing new
policies or new types of productWithholding approval for new businessactivities or acquisitions
Suspending the licence of an insurerWithdraw licence to write new business

Restricting the transfer of assets
Restricting purchase of an insurer’s own
sharesProhibit transfer of assets



Restricting or suspending dividend orother payments to shareholders

Prohibit the payment of dividends toshareholders



Facilitating the transfer of obligations
under the policies from a failing insurer
to another insurer that accepts thistransfer
Prohibiting the insurer from continuing abusinessrelationshipwithanintermediary or other outsourced
provider, or requiring the terms of sucha relationship to be varied

Terminate,contractsReplacing or restricting the power androle of Board Members, Senior
Management, Key Persons in Control
Functions if the supervisor has material
concerns
withmanagement
orgovernanceRetain, remove, or replace Board
members, senior management, key
personsTemporarily delaying or suspending, inwhole or in part, the payments of theImpose moratoria on policyholder
surrender rights, temporarily restricting

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redemption values on insurance
liabilities or payments of advances oncontracts

or suspending policyholders’ rights towithdraw their insurance contracts

33.
For the purpose of this Application Paper, the powers listed in ICP 12 and ComFrame
have been grouped based on common characteristics to facilitate describing the powers andtheir benefits and uses. To avoid repetition, each power is listed only once, but many powers
could fit within more than one category. As indicated in ICP 12, the list of resolution powers is
not exhaustive and the resolution authority should have discretion to apply other available
powers when developing and implementing its resolution strategy. Also, the powers in ICP
12.7.4 have the status of guidance (ie a recommendation), whereas the powers in CF 12.7.ahave the status of a standard (ie a requirement). Therefore, for jurisdictions that have one ormore IAIGs, all powers listed under CF 12.7.a are required to be available for IAIGs. For otherjurisdictions (or for insurers that are not IAIGs), ICP 12.7 requires an appropriate range ofpowers, and ICP 12.7.4 recommends powers that should be available to the resolution
authority. Finally, the order of presentation of the powers is not an indication of the sequencein which these powers could be exercised, or of their priority. With these disclaimers in mind,
the powers have been grouped as follows:
1. Taking controlTake control and manage the insurer, or appoint an administrator or manager todo so;
Override rights of shareholders of the insurer; andRetain, remove, or replace Board members, Senior Management, Key Persons

2. Prohibition of certain payments and transfersProhibit the payment of dividends to shareholders;
Prohibit the payment of variable remuneration; andProhibit the transfer of assets

3. Withdrawal of licence to write new business and placement into run-off
4. Restructuring mechanisms






Sell or transfer the shares of the insurer to a third party;
Restructure, limit or write down liabilities (including insurance liabilities), andallocate losses to creditors and policyholders;Terminate, continue or transfer contracts, including insurance contracts;
Transfer or sell the whole or part of the assets and liabilities of the insurer to asolvent insurer or third party; andTransfer any reinsurance associated with transferred insurance policies without
the consent of the reinsurer

5. Suspension of Rights


Temporarily restrict or suspend the policyholders’ rights of withdrawing theirinsurance contracts;
Stay rights of the reinsurers of the ceding insurer in resolution to terminate or not
reinstate coverage relating to periods after the commencement of resolution; andPublicApplication Paper on Resolution Powers and Planning
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Impose a temporary suspension of payments to unsecured creditors and a stayon creditor actions to attach assets or otherwise collect money or property fromthe insurer

6. Liquidation
7. Powers required in ComFrame



4.1

Establish a bridge institution;
Take steps to provide continuity of essential services and functions; andImpose a temporary stay on early termination rights in financial contracts (including
derivatives and securities financing transactions).
Taking control

34.
Taking control of the insurer is a critical step in the resolution process, as it is aprerequisite for exercising many of the other resolution powers. The resolution authority’s
powers should not require, or be contingent on, the cooperation of the insurer or its
shareholders.
Take control and manage the insurer, or appoint an administrator or manager to do so
35.
With this power, the resolution authority takes control of the insurer in resolution inplace of the insurers’ Board and shareholders, to direct its activities so the insurer can continue
to operate. This includes the management and disposal of the insurers’ assets and liabilities.
The resolution authority should have all of the powers of the insurer’s Board and Senior
Management, whose authority is suspended except as permitted by the resolution authority.
The resolution authority should also have the power to manage or discharge employees.
36.
The resolution authority can exercise its control of the insurer in resolution directly or
through the appointment of one of more persons, including an administrator or manager. The
role of such appointment is to facilitate and implement necessary measures to achieve theresolution objectives, at the direction of the resolution authority. The resolution authority, its
administrator or manager, should have authority to obtain any other professional services. The
compensation of an administrator, manager or others providing services would normally be
paid by the insurer unless otherwise specified in the particular jurisdiction.
37.
Finally, the resolution authority should be able to take control of all of the insurer’s
property and authorised to deal with its property.
Override rights of shareholders of the insurer
38.
This power is necessary to implement other resolution powers. Whilst the insurer is in
resolution, the voting rights attached to shares of the insurer are suspended. The resolution
authority should be able to act in accordance with its resolution objectives without the need toobtain shareholder approval, so that the actions conducted by the resolution authority can be
implemented in a timely manner, consistent with the parameters provided to it under thatjurisdiction’s resolution regime.
Retain, remove, or replace Board members, Senior Management, Key Persons
39.
The aim of replacing key decision makers is to ensure effective management of theinsurer during and post resolution.

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40.
The supervisor should require Board Members, Senior Management and Key Persons
in Control Functions of an insurer to be and remain suitable to fulfil their respective roles (seeICP 5 (Suitability of Persons)). This is also true in resolution. The resolution authority may
consider senior key decision makers within the insurer to be unsuitable, and consequently
may need to remove or replace them. The fact that an insurer enters a resolution phase mayitself be an indication that some or all Board Members, Senior Management and/or Key
Persons do not meet suitability requirements.
4.2

Prohibition of certain payments and transfers

41.
The resolution authority should have the ability to prohibit dividends to shareholders,prohibit or claw-back the payment of variable remuneration to the insurer’s management, andprohibit the transfer of certain assets without supervisory approval. These actions can help toprevent a withdrawal of assets that could hamper or undermine the effectiveness of theresolution action. A supervisor may also apply these powers prior to resolution (ie in recovery
phase) to preserve, or improve the financial condition of the insurer.
42.
These measures can limit or recoup payments from an insurer that could be used toabsorb losses in resolution. Thus, in a resolution scenario, these powers generally aim toprotect policyholders and other creditors as asset withdrawals could further worsen thefinancial position of the insurer. Powers to prevent the outflow of assets can help achieve theresolution objectives by preserving value in the insurer.
Prohibit the payment of dividends to shareholders
43.
The prohibition of dividend payments prevents cash outflow, which would lead to afurther deterioration of the solvency position.
Group perspectives
44.
If only a part of an insurance group is failing, imposing restrictions on the whole groupin group resolution would retain the liquidity which could be used for the resolution of the failing
part.
45.
According to the Member Survey, in some jurisdictions it may be legally difficult toprohibit dividend payments by the parent company if the parent company is not a regulated
legal entity. This makes it essential to have the power to prohibit dividend payments byregulated legal entities into the head of the insurance group, and where appropriate andfeasible, to negotiate legally binding commitments by the head of the insurance group.10 In
cases of significant amounts of intra-group transactions it can give rise to increased risks atboth insurance legal entity level and group level. The impact of all such risks should be taken
into account in the overall assessment by the resolution authority.
Prohibit the payment of variable remuneration
46.
This power enables the resolution authority to prohibit the payment of variable
remuneration to, and allow the recovery of monies from, Members of the Board, Senior
Management, Key Persons in Control Functions and major risk-taking staff, including clawback of variable remuneration. In some jurisdictions, recovering monies from these persons
may require a court order.

10 One such example can be found in the United Kingdom (see Annex).

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47.
Legislation can specify the circumstances in which the resolution authority may prohibit
or claw-back variable remuneration. Ideally, the resolution authority should have the discretion
to decide when and how to exercise this right, as this flexibility will promote the objective of
implementing resolution powers proportionately. The following examples illustrate some of thepotential factors that the resolution authority could consider when deciding whether to prohibit
or claw-back variable remuneration:The conduct or performance of the persons to whom payments are due, or were made;The amount of the payment relative to the person’s salary or other compensation; andThe impact of the aggregate payments on the financial condition of the insurer.

48.
Codifying this power may be beneficial even in situations where an insurer is not yet
in resolution. If an insurer experiences financial distress, the insurer’s key decision makers areon notice that certain payments may be subject to claw-back if the insurer enters into
resolution. Finally, the very presence of this power in legislation may encourage the insurer’s
key decision makers to avoid taking unacceptable risk, and hence may work as a preventive
tool as well.
49.
There may be limitations on the resolution authority’s power to prohibit or claw-backpayments. According to the Member Survey, in some jurisdictions labour legislation restricts
the application of this power.
Prohibit transfer of assets
50.
This power is used to ensure the preservation of the insurer’s assets to retain value inthe insurer and can support orderly resolution powers (if these are eventually needed), by
ensuring that management does not make undesirable or inconsistent transfers.
51.
The prohibition of asset transfers should be applied selectively, as forbidding sometransfers may be detrimental to policyholders. For example, if there are reinsurance
agreements, a cessation of all payments to reinsurers could cause reinsurers not to pay claims
to the ceding insurer, which could negatively impact the primary policyholders. Or, if payments
are due within an insurance group, suspending these payments could unduly impact somepolicyholders. In such cases the resolution authority may restrict specific deals or types oftransactions.
52.
Depending on the resolution powers available and authorities involved, exercising thispower may be complex. According to the Member Survey, in some jurisdictions the resolution
powers are divided, with no single authority responsible for all resolution powers or all phasesof resolution. In particular, resolution powers other than liquidation may be conducted by the
resolution authority, while liquidation may be conducted by an insolvency administrator or
liquidator in the same manner as non-insurance insolvencies. This can limit the resolution
authority’s ability to exercise its resolution powers. In some jurisdictions there may be noreadily available powers for the supervisor acting as resolution authority to prohibit theinsolvency administrator or liquidator from lawfully transferring assets pursuant to thedomestic bankruptcy law if the licence of an insurer was withdrawn and it is no longer a
supervised entity. According to ICP 12.8.2, in such cases legislation should either “requireprior approval of the supervisor” or at least “require prior coordination with the supervisor”. If
these two requirements are not met, legislation “should provide that the supervisor may
challenge the person’s action”. This situation illustrates the advantages of a comprehensive
legislation governing insurance resolution, which can be tailored to comport with ICP 12.
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Group perspectives
53.
In the context of insurance groups, it may be useful to impose restrictions on asset
transfers at the beginning of the resolution process as it may be difficult to reverse transfers
retrospectively to recover assets once the legal entity in resolution has already transferredassets to another entity or group holding company. There may be further complexities to thereversal of a transfer if the original transfer was to a non-regulated entity or an entity that
resides in another jurisdiction.
4.3

Withdrawal of licence to write new business and run-off

54.
The withdrawal of the licence to write new business,11 including an immediate freeze
on the power of intermediaries to bind coverage, is a general (supervisory) power, which canbe applied in a wide variety of circumstances, including in resolution. Without a licence to write
new business, but with continuing obligations to the existing policyholders (and normallysubject to on-going supervision by the relevant authority or authorities), the insurer would
effectively be in run-off.
55.
One of the purposes of this measure will be to prevent new policyholders from being
exposed to certain risks associated with a failing insurer. It is also important for existing
policyholders and other creditors to prevent the insurer from taking on additional risk (ie newpolicyholder liabilities) when it is under financial distress and is likely to fail.
56.
This measure can also help to reduce operational costs, as that insurer would nolonger require certain functions within its business. Costs can be reduced by reducing theheadcount of staff or by cancelling or modifying outsourcing arrangements with third parties,
especially in respect to product development, sales, advertising and related distribution.
However, a withdrawal of the insurer’s licence to write new business may have unintended
consequences, which should be adequately considered prior to a decision to withdraw. For
example, the withdrawal of the insurer’s licence to write new business could have an adverse
impact on the insurer’s cashflow, which could cause subsequent liquidity issues. Additionally,
regulatory intervention may adversely affect policyholders’ perception of the robustness of theinsurer, and, particularly for insurers with long-term products, this may incentivise somepolicyholders to surrender their policies or lapse on premium payments, which could lead toliquidity issues or the forced sale of assets below market price to meet those claims.
57.
Both the intended and unintended consequences of withdrawing the licence to write
new business should be evaluated appropriately given the relevant facts at the time.
58.
Additionally, the withdrawal of the licence will, in many cases, be accompanied byadditional measures, including restructuring mechanisms or a full or partial portfolio transfer.
Additional measures intended to be implemented by the resolution authority should also be
considered in its evaluation of whether to withdraw the insurer’s license.
59.
The withdrawal of the licence would enable a resolution exit strategy that contemplates
the insurer’s run-off. A run-off would provide continuity of cover to policyholders. Dependingon the type of business, and on its solvency position, an insurer that is no longer licensed towrite new business might remain permitted or obligated to continue renewing its in-force
policies.
11 This may also be achieved through the supervisory power to suspend the licence, or restriction on

writing new policies (see table 3).
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60.
It is possible for an insurer to fail to meet its regulatory capital requirements, but still
be sufficiently solvent to meet all its liabilities to the maturity of all policies of the portfolio infull. It would be prudent for the resolution authority to require the insurer to produce a solvent
run-off plan and conduct actuarial and sensitivity analysis to that plan to receive sufficientassurance that the insurer can reasonably run-off its business to maturity. As the portfolio runs
off over time the profitability of the insurer would decrease, but fixed costs (eg administration
costs) would not decrease proportionately, and this could cause potential liquidity or solvency
issues as the portfolio matures. As the run-off tails-off, there may be benefit in the transfer ofthe small, remaining portfolio to a private sector purchaser, or even to liquidating the insurer.
61.
However, the withdrawal of the licence may not need to be permanent, and could justbe temporary. For example, if the resolution strategy was to re-capitalise the insurer so that itmeets its PCR, then there could be a reasonable rationale to justify reinstating the insurer’s
licence as part of the exit strategy for resolution. There would need to be consideration forpolicyholder protection and fair treatment of policyholder groups (ie policyholders at the pointof resolution and future policyholders post-resolution), particularly if policyholder liabilities
were written-down as part of a restructuring. This, of course, will depend heavily on the
resolution strategy and relevant facts at the time.
4.4

Restructuring mechanisms

62.
In some situations an insurer can be restructured, which can permit aspects of thebusiness to be saved. Some measures can impact the rights of third parties. These actions,which are subject to the safeguards discussed in section 4.8, can include the following:
Restructure, limit or write down liabilities (including insurance liabilities), and allocate losses
to creditors and policyholders (where applicable and in a manner consistent with the liquidation
claims hierarchy and jurisdiction’s legal framework)
63.
The FSB Key Attributes provide a list of resolution powers that fit well underrestructuring mechanisms, and which the resolution authority should have at its disposal toabsorb losses and achieve the resolution objectives:12








Write down equity and cancel shares or other instruments of ownership of the insurer;
Write down unsecured creditor claims;
Exchange all or parts of unsecured creditor claims, or convert them into equity or other
instruments of ownership of the insurer, any successor in resolution (such as a bridge
institution to which part or all of the business of the failed insurer is transferred) or theparent company within that jurisdiction;
Override pre-emption rights of existing shareholders of the insurer;
Issue new equity or other instruments of ownership;
Issue warrants to equity holders or subordinated (and if appropriate senior) debt
holders whose claims have been subject to bail-in13 (to enable adjustment of the
distribution of shares based on a further valuation at a later stage); and12 See paragraph EC 3.11 and EC 3.13 of the FSB KAAM for the Insurance Sector.
13 Bail-in, as defined by the FSB, are restructuring mechanisms that enable loss absorption and therecapitalisation of an insurer in resolution or the effective capitalisation of a bridge institution throughthe cancellation, write-down or termination of equity, debt instruments and other senior or subordinatedunsecured liabilities of the insurer in resolution, and the conversion or exchange of all or part of such
instruments or liabilities (or claims on the insurer) into or for equity in or other ownership instruments
issued by that insurer, a successor (including a bridge institution) or a parent company of that insurer.
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

Restructure insurance liabilities (whether currently due and payable or contingent).

64.
The primary objective of using a write-down tool is to absorb losses by reducing thevalue of a failing insurer’s liabilities. When possible, this may enable the insurer to restore its
viability such that it can continue to operate following the write-down. Also, it may be used toenable other resolution actions which would not have been feasible without a write-down,
including run-off or portfolio transfer. For example, a restructuring of insurance liabilities may
be needed in order for the portfolio to be transferred to a private sector purchaser. That may
be in the interest of the policyholders as the policies are continued, even though the insurer
does not continue to exist.
65.
In using the write-down tool, the resolution authority should remain mindful of the
NCWOL principle. The higher a claim stands in the liquidation claims hierarchy, the more likely
it will be that the NCWOL principle will constrain the options for writing down that claim. Given
the high priority of policyholder claims relative to other creditors, this is of particular relevancefor policyholder liabilities, whereby a write-down would be limited to scenarios where theaffected policyholders do not receive less than they would have in liquidation (see ICP 12.9).
If a PPS is available to pay claims in a liquidation, the NCWOL analysis should consider theprotection provided by the PPS to policyholders, as well as the impact of the write down on
any policyholders whose claims are not covered by the PPS in whole or in part.
66.
The resolution authority will need to assess the level of solvency required to gain
sufficient comfort of the insurer’s financial position post-write-down. This could be determined
ex-ante (for example, the insurer could be required to meet a predetermined percentage of its
PCR) or determined on a case-by-case basis (for example, taking into consideration theinsurer’s size, business model, nature of policyholder liabilities or the resolution strategy: eg,
do the authorities intend to allow the insurer to continue to sell new business or put the insurer
into run-off?).
67.
The resolution authority may want to consider whether policyholder premiums should
be adjusted post-write-down to reflect the write-down of their liabilities.. The resolution
authority would need to be mindful of the NCWOL principle when making this consideration.
68.
Jurisdictions that have a PPS may want to consider providing a legal right to the PPS
to be subrogated to (the claims of insured policyholders in the liquidation of the insurer (ie,have the same right that the policyholder would have had to make a claim), up to the total
amount the PPS made in payments to protected policyholders.
69.
A write down will necessarily be based on the projected performance of the insurer’sbusiness over the course of the run-off. If the performance exceeds these assumptions, there
may be more funds available than anticipated. If this occurs, the resolution authority may
consider a mechanism to distribute any surplus funds by a “write-up” that reduces the severityof the write-down. This could be implemented by a distribution of the surplus in accordancewith the liquidation claims hierarchy. The resolution authority could make a series of periodic
distributions that are recalibrated over the run-off, as experience replaces assumptions. The
pro rata payments would compensate policyholders (and potentially other creditors) for theamounts they were owed that were written-down. This could be applied retrospectively (ie on
claims that were previously written-down) and prospectively, consistent with the jurisdiction’s
legal framework. If policyholders receive the full amount of their claim, any remaining surplus
would be distributed to other creditors in accordance with the liquidation claims hierarchy.
Terminate, continue or transfer contracts, including insurance contracts
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70.
This power facilitates and supplements internal restructuring by enabling the resolution
authority to move ownership of contracts to third parties or across legal entities within thesame group. This could include intra-group services contracts, intra-group financial contracts
and policyholder liabilities. The restructuring of policyholder liabilities via intra-group transfers
could be beneficial, for example, to restructure the insurance legal entity in resolution so that
it is more attractive to a private sector purchaser.
Sell or transfer the shares of the insurer to a third party and transfer or sell the whole or partof the assets and liabilities of the insurer to a solvent insurer or third party
71.
In some circumstances, an insurer might not be viable on its own, but could still be a
profitable component of a larger enterprise with the necessary expertise or complementarybusiness units. Even if its profitability is uncertain, a buyer with enough loss-absorbing
capacity might assess that the potential rewards outweigh potential risks. In such a situation,
viability can be restored by selling the insurer to a third party that is willing to recapitalise it
adequately.
72.
However, there may be challenges in finding a willing buyer of shares in a failed insurer(ie an acquirer of the entire business, including the totality of its liabilities). Instead of sellingor transferring the shares of the failed insurer, a transfer to a private sector purchaser may be
more easily achieved by transfer of some of its assets and liabilities.
73.
Some of the factors that will affect the feasibility of finding a prospective purchaser for
all or portions of the insurer include:











The size of the failing insurer compared to the overall market;
The product types the insurer underwrites and the size of the relative product typebooks;
Whether there are any issues with the treatment of policyholders that may complicate
a transfer (for example, if policies had specific clauses, such as guarantees backed by
the insurer’s holding company on default of the insurer which would fall away once thetransfer completes);
The financial position of the failing insurer at the point the assessment is made (forexample, if there were sufficient assets to at least meet the Current Estimate of
Liabilities,14 then it would be easier to find a prospective purchaser);Market capacity/appetite to take on a (large) book(s) of business (this would dependon market conditions and the financial position of competitors at the point of theassessment);
The timeframe that the resolution authority assesses a property transfer would need
to be completed by; andThe impact on diversification at the level of the third party.

74.
A transfer could be made more viable if the insurer’s larger books of business weresplit into multiple tranches, with different tranches potentially relating to different products or
risk profiles. The resolution authority could breakdown the portfolio so that individual books ofbusiness were of a quantum that could be taken on by another insurer. How the liabilities could
be split up would be situation and fact dependent, although resolution planning would provide

14 See ICP 14.7.4

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the means to identify potential ways the failing insurer’s liabilities could be split so that they
could be transferred.
Transfer any reinsurance associated with transferred insurance policies without the consent
of the reinsurer
75.
This power may be required in circumstances where the resolution authority intends totransfer, in whole or in part, assets and liabilities of the insurer to a solvent insurer or third
party, where insurance policies are, prior to the transfer, covered, in whole or in part, by
reinsurance. This power provides the resolution authority with the ability to transfer insurance
policies without changing the portfolio’s risk profile and associated capital requirements byretaining the economic benefit provided by the reinsurance.
76.
The reinsurance associated with the transferred insurance policies will have a direct
impact on the portfolio’s exposure to the total value of potential claims and therefore will also
have a direct impact on the amount of capital required to back those policies for the acquiring
insurer to meet its PCR post-transfer. In absence of the pre-existing reinsurance there may
be insufficient assets to back the insurance policies, or the portfolio may become lesscommercially attractive, which would likely create difficulties in finding a willing third party topurchase the insurance contracts as part of a transfer.
4.5

Suspension of rights

Temporarily restrict or suspend the policyholders’ rights of withdrawing from their insurance
contracts
77.
A moratorium on policyholder surrender rights, for a defined, limited period of time,
would provide that any notice given by a policyholder to withdraw funds or to surrender theirpolicy is either of no effect or deferred. It could thereby provide financial stability to the insurer,
for example, preventing the risk of mass lapse for the duration of the moratorium. In certain
circumstances, it would also provide stability and time to better allow for valuation (forexample, to prepare for a portfolio transfer) and implementation of restructuring or a writedown tool. Such a moratorium also ensures even treatment of policyholders, avoiding a “raceto surrender”, which could have an adverse financial impact on the remaining policyholders.
78.
The legislation should provide for the scope of the moratorium to be as broad asnecessary, so that all policyholders (whether protected or unprotected by a PPS) could be inscope when appropriate. When exercising the power, the resolution authority should then havethe flexibility to determine which policyholders would fall into scope of the moratorium on acase-by-case basis. For example, there may be a rationale to exclude annuitants from amoratorium.
79.
The population of policyholders to which the moratorium might apply in a specificresolution may be driven by policy type and whether they are being transferred (in addition to
the general purpose of the moratorium).
80.
Insurance policy lapses or the exercise of surrender rights differs from the withdrawalof sight deposits in the banking context. Depositors have an immediate right to withdraw froma bank. For a policyholder to exercise surrender rights, a surrender request must be submitted
and there is generally a contractual window of time for the insurer to actually effectuate thepayment.

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Impose a temporary suspension of payments to unsecured creditors and a stay on creditor
actions to attach assets or otherwise collect money or property from the insurer
81.
Actions by unsecured creditors to attach or sequester the insurer’s assets can resultin uneven treatment of creditors, and hinder efforts to resolve an insurer. If an action to seize
assets is successful, it can result in a full payment of a creditor’s claim that would result in
reduced payments to other claims —including policyholder claims. A statutory or judicial stayon creditor actions can thus prevent a “race to payment”, and preserve assets so that allcreditors, depending on their ranking, are evenly treated.
82.
Although not explicitly listed as a power in ICP 12, in the case of a write-down tool, amoratorium on payments to policyholders would provide breathing room to temporarily pause
payments of claims to apply the write-down of the policy value, and then make payments at
the reduced rate. This temporarily avoids paying policyholders who are due to be writtendown, but without giving cause of action for any consequential losses arising from delayed
payments that have fallen due. In the case where the moratorium would suspend payments
to policyholders, there would need to be an explicit power accompanied by provision that theinsurer would not be in breach of its contractual obligations for the duration of the moratorium.
Stay rights of the reinsurers of the ceding insurer in resolution to terminate or not reinstate
coverage relating to periods after the commencement of resolution
83.
The purpose of placing a stay on the termination rights of reinsurance contacts is toprevent reinsurance counterparties from terminating their contracts on the sole ground of theinsurer’s entry into resolution. Operation of the stay may depend on whether the insurer is still
performing its substantive obligations towards the reinsurer. If the substantive obligations arestill being performed, there should be no loss in respect to damages that the counterparty
could claim. If the insurer in resolution defaults in performance of any of its substantive
obligations under the reinsurance contract following the expiry of the stay, any applicable earlytermination rights will be exercisable.
84.
This power should not be construed as constituting forced continuation of reinsurance
beyond the stipulations of the reinsurance contract. For example, it is not envisaged for
resolution authorities to compel reinsurers to keep a reinsurance contract in force beyond theoriginal duration or date of maturity or to require reinsurers to continue renewable contracts
where the reinsurer has the right not to renew the contract at the end of the term of the current
insured period.
4.6

Liquidation

85.
Unlike other resolution powers, which may aim to stabilise or restructure an insurer, ina liquidation, the insurer’s policies are often rapidly cancelled or transferred, its assets are soldand converted to cash, its funds are distributed, and its corporate existence is terminated.
Liquidation is typically sought only after other efforts to rehabilitate an insurer are notsuccessful, or when it appears that alternatives would be futile. Liquidation can be used inconjunction with other resolution powers.
86.
Most or all jurisdictions have a process for liquidating an insurer. Some jurisdictions
have specialised liquidation schemes for insurers (or for financial institutions), while others
may use the liquidation process available for general corporations. ICP 12 provides standards
and guidance that specifically apply to liquidation of insurers:
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ICP 12.8 states that the supervisor is involved in the initiation of the liquidation. If
another person is allowed to initiate liquidation, the supervisor should have the rights
described in ICP 12.8.2. Under ICP 12.7.4, the resolution authority (which may bedifferent from the supervisor) should be authorised to initiate liquidation of an insurer.
ICP 12.9 requires liquidation laws to provide a high priority to policyholders’ claims
within the liquidation claims hierarchy.

87.
Liquidation is generally viewed as the remedy of last resort, as it results in thetermination of the insurer, its business and its policies. Liquidation also destroys the value ofthe insurer's in-force business and its value as a going concern, including intangible assets.
Further, it may affect other insurers by undermining public confidence in insurance. Whereavailable, resolution actions other than liquidation might help to preserve value, as well as
achieving “public interest” resolution objectives, such as policyholder protection, preservationof financial stability and maintaining economically important functions. However, any other
resolution action is subject to the NCWOL principle, which provides that creditors should beentitled to compensation if they receive less than they would have received if the insurer was
liquidated. This ensures that the outcome for creditors is at least equivalent to the outcomethat would have occurred in liquidation.
88.
There may be cases where liquidation is the most appropriate alternative. The decisionon when and how liquidation should be sought can involve a number of factors, as well ascompeting considerations:








4.7

If liquidation is initiated abruptly, it can create a hardship on policyholders, especially
if the liquidation laws mandate the immediate termination of policies. If possible,
policyholders should have sufficient notice to obtain replacement coverage, assumingthat it is available;
The existence of a PPS may affect timing of liquidation. For example, if there is no
PPS, it may be necessary to take immediate action to liquidate an insurer in order topreserve assets and avoid preferential payments. In contrast, if a PPS is available tocontinue the payment of claims, the resolution authority may need to coordinate with
the PPS before initiating liquidation;
In a group context, some insurance legal entities may be liquidated and others may beresolved in another manner. For example, some insurance legal entities might remain
viable, others might need to be resolved using other powers than liquidation, andothers might have no other option than liquidation; andOther resolution actions may not be an option in all cases. If there is a public interest
threshold for the use of certain resolution tools, then a failing insurer that does notsatisfy such a public interest test may have to be liquidated in regular insolvency
procedure (eg this may be the case for smaller insurers in some jurisdictions, such as
the Netherlands (see Annex)).
Resolution powers in ComFrame89.
Dealing with the resolution of an IAIG presents unique challenges, particularly in thecase of a group with highly interconnected legal entities. Insurance legal entities in the groupmay be regulated by different supervisors, and some other entities may not be regulated byany financial authority. Non-financial legal entities could include both holding-company
parents of financial institutions and unrelated nonfinancial businesses within a conglomerateownership structure.
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90.
The additional powers that are required to be available for resolving an IAIG are
discussed in this subsection (see CF 12.7.a). These powers may also be useful for the
resolution of insurance legal entities or insurance groups that are not IAIGs.
Establish a bridge institution
91.
A bridge institution is a temporary institution aimed at receiving a transfer of assets
and insurance liabilities from an insurer in resolution, with the intention to transfer the received
assets and liabilities to a private sector purchaser at a later stage. The bridge institution is
temporary in nature to facilitate a transfer that does not attract purchasers at the specific timingof resolution (for example, a market-wide stress or macro-economic conditions make finding
a prospective purchaser challenging), whilst continuing to operate certain essential services
and functions and viable operations of a failed insurer. A bridge institution should notintentionally be used as a run-off vehicle where assets and liabilities are held to maturity orcompletion.
92.
A bridge institution should be controlled by the resolution authority. Such control could
result from, inter alia, a majority ownership by the resolution authority, control voting rights inshares issued by the bridge institution, a Board majority, etc. Legislation should establish
provisions, and the resolution authority take steps and arrangements, for appropriate
management of the bridge institution.
93.
A bridge institution may require authorisations (for example, permissions to carryinsurance contracts / to make payments to policyholders) prior to receiving a transfer of
insurance contracts. Authorisation requirements are likely to be jurisdiction specific.
94.
To achieve the desired outcomes, the provisions for a bridge institution will likely
include:

The power to establish the terms and conditions under which the bridge institution has
the capacity to operate as a going concern;
The power to reverse asset and liability transfers, or forward those transfers to a third
party; andThe power to arrange the sale of the insurance portfolio of the bridge institution to a
private sector purchaser so as best to achieve the objectives of the resolution authority.

Take steps to provide continuity of essential services and functions
95.
Legislation can require that the resolution authority approve contracts between an
insurer in resolution and other legal entities within the group (including non-regulated entities)
to ensure that there are no impediments to continuing essential services to the insurer inresolution or any successor or acquiring entity. As a general matter, legislation can also
specify mandatory terms in an insurer’s contract with any party providing services to prohibit
the party from unilaterally cancelling the contract if the insurer is placed in resolution. The
party providing services should be permitted to charge a reasonable amount for services, but
not necessarily to require the payment of charges incurred before resolution as a condition ofproviding services.
96.
If an insurer’s policies are transferred to a successor or an acquiring entity, it may benecessary to ensure that the residual entity, or the third parties providing services to the latter,
can temporarily provide services to the successor or acquiring entity.

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Impose a temporary stay on early termination rights in financial contracts (including derivatives
and securities financing transactions)97.
The purpose of placing a stay on the termination rights in financial contracts is toprevent financial counterparties from terminating their contracts on the sole ground of theinsurer’s entry into resolution, preventing, in particular, the close-out of financial contracts insignificant volumes. This allows for derivatives contracts to continue to offset financial risks
through the resolution process (provided that the insurer in resolution, or any successor towhich the contracts have been transferred, continues to perform its obligations under thosecontracts).The termination of large volumes of financial contracts upon entry into resolution
could result in a disorderly rush for the exits, creating further market instability and frustrating
the proper implementation of resolution powers.
98.
Financial contracts are defined by jurisdictional law, 15 but typically consist ofderivatives and other financial contracts, such as repo or reverse repo, securities lending andother similar transactions subject to contractual set-off and netting arrangements. Insurance
contracts do not fall into this category. The scope of the temporary stay on early termination(close out) and netting should be as broad as possible so that all financial contracts with such
early termination rights could be in scope. The stay may be automatic, or on a case-by-casebasis. A discretionary stay power would provide the resolution authority with the flexibility to
decide on a case by case basis which contracts should be subjected to the stay. An automaticstay would apply for the period specified by statute on the entry of an insurer into resolution(or the occurrence of any other event defined as triggering the stay), without any discretion on
the part of the resolution authority.
99.
The temporary stay would need to apply for a clearly limited period of time, sufficient
to provide “breathing space” so that other resolution powers can be implemented (for example,
the restructuring of liabilities, the transfer of assets and liabilities, etc.).
100. To be effective and consistent with the objectives of resolution, temporary stays are
frequently subject to the following conditions:16






The stay should apply to early termination rights that are triggered by the entry into
resolution, by the reasons for entry into resolution, or by the use of resolution powers;
The stay is strictly limited in time;
The resolution authority would only be permitted to transfer all of the eligible contracts
with a particular counterparty to a new entity and would not be permitted to select fortransfer any individual contracts with the same counterparty and subject to the samenetting agreement (ie the “no cherry-picking” rule);
The early termination rights of the counterparty are preserved against the insurer inresolution in the case of any default occurring before, during or after the period of thestay that is not remedied by the resolution authority on entry of the insurer into
resolution or which is not related to entry into resolution or the exercise of a resolution
power (for example, a failure to make a payment or the failure to deliver or returncollateral on a due date);

15 “Financial contracts” may be defined for the purposes of specific treatment under insolvency law, forexample, to exclude them from any moratorium on the exercise of contractual rights to close-out netting
in insolvency.
16 See also paragraph 2.1 of I-Annex 5 of the FSB Key Attributes.
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Following a transfer of financial contracts the early termination rights of thecounterparty are preserved against the acquiring entity in the case of any subsequent
independent default by the acquiring entity; andAfter the period of the stay, early termination rights could be exercised for thosefinancial contracts that are not transferred to a sound insurer, bridge institution or otherpublic entity.

101. The failure by the insurer to meet a substantive obligation against any counterparties
can trigger the termination of the financial contract to exercise any acceleration or earlytermination rights that arise as a result of that failure. For example, this may include thesituation where the insurer is unable to post required collateral or to meet settlement
obligations against a Financial Market Infrastructure (FMI).
4.8

Safeguards

102. As stated in ICP 12.10, the resolution authority is required to exercise resolution
powers in a way that respects the liquidation claims hierarchy and adheres to the NCWOL
principle. Guidance of ICP 12 provides some elementary examples of how the NCWOL
principle can be implemented, but legislation to implement resolution powers can provide moredetailed procedures to effectuate the NCWOL principle. These may include the following:








Clear standards for compliance with the NCWOL principle;
Use of independent experts to review a resolution proposal, including a valuation ofclaims in insolvency and review the NCWOL outcomes;
The development of counterfactual scenarios showing how policyholders and othercreditors would fare if the insurer were liquidated (including considering whether a PPS
would be available in liquidation);
A transparent explanation of how the proposed resolution complies with the NCWOL
principle, and notice to policyholders and other creditors;
Procedures for addressing comments or objections by interested parties, whereapplicable; and/or
Approval by any relevant authority or body (eg court), when provided by legislation.

103. The NCWOL principle states that creditors are entitled to compensation if they areworse off in resolution than they would be if the insurer is liquidated; in other words, suchcreditors should achieve an outcome at least equivalent to the outcome they would achieve if
the insurer were to be liquidated. For example, if the resolution authority orders speedy
payments to be made to policyholders, and later on unexpected liabilities appear, this could
leave future policyholder claimants with a pro-rata lower than they would have received inliquidation. In scenarios of this type, legislation should provide a remedy to compensate suchcreditors if resolution fails to achieve compliance with the NCWOL principle. This could bedone, for instance, through the operation of a resolution fund.

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5Resolution plans

5.1

Objective

104. A resolution plan identifies in advance options for resolving all or part(s) of an insurer
with the ultimate aim to be better prepared for resolution. Therefore, a resolution plan serves
as a guide to authorities for achieving an orderly resolution. A resolution plan should alsoestablish a range of measures that can be taken to minimise the impact of an actual orprospective failure without the risk to public funds. Furthermore, the plan should identify the
insurer’s financial and economic functions that need to be continued to achieve the resolution
objectives and put in place measures, including the necessary steps and time to implement
such measures, to ensure continuation of these functions in resolution or set appropriate
measures for running off these functions in an orderly manner if that would best serve theinterests of policyholders and reduce any negative impact on financial stability and theeconomy.
5.2

Scope of application and proportionality

105. In most jurisdictions, the development of a resolution plan is only required for a subset
of insurers, in line with ICP 12.3 and ComFrame integrated therein. Similarly to recovery
planning,17 the requirements for preparing for resolution involve a proportionate approach, withrequirements that become more stringent depending on the size and complexity of an insurer,
amongst other considerations. This subsection is intended to provide guidance to assist
supervisors and/or resolution authorities in their determination whether a resolution plan isnecessary, as well as how planning for and managing a resolution can still be facilitated whensuch a plan is not deemed necessary.
106. ICP 12.3 provides that “the supervisor and/or resolution authority requires, asnecessary, insurers to evaluate prospectively their specific operations and risks in possible
resolution scenarios and to put in place procedures for use during a resolution.” In cases
where a resolution plan as such is not required, this standard may be implemented byengaging in simplified resolution planning, for instance as part of the normal crisis
management and business continuity procedures. This may be done by developing a common
plan or process for resolving certain type of insurers that have common characteristics, or bydeveloping simplified planning for resolution strategies for an individual insurer, focusing only
on some key elements listed in subsection 5.4 (such as, the strategic and legal analysis of theinsurer, the communication plan, the description of the resolution strategy and/or theconclusion of the resolvability assessment). Also, ICP 12.3 may be implemented throughengaging with insurers on these issues as part of the day-to-day supervision, such as theircrisis management and business continuity procedures, as well as contingency capital andfunding plans.
107. The existence of financial and economic functions that need to be continued to achieve
the resolution objectives should be taken into account when considering the need for
proportionate resolution planning. An assessment process based on the key elements listed
in paragraph 125 should allow identification of those insurers whose failures might have asystemic impact on the financial system and the real economy, and should be based on

17 See ICP 16 (Enterprise Risk Management for Solvency Purposes) and ComFrame integrated therein and theApplication Paper on Recovery Planning.
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supervisory experience. At the same time, it would contribute to ensuring consistency acrossjurisdictions in the scope of resolution planning.
108. In cases where an insurer is approaching the resolution triggers, and a resolution planas such has not been developed in advance, it can be assumed that an “ad-hoc” resolution
plan would be needed, mapping the resolution powers available to the particular situation.
Successful resolution may be complicated where the markets are in stress (eg in case ofmultiple simultaneous failures) and/or in a context in which the resolution needs to be done
within a short period of time (the so called “over-the-weekend” resolution).
109. ComFrame provides that for certain IAIGs, resolution plans need to be in place asnecessary. For those IAIGs, the remainder of section 5 provides guidance for its development.
Therefore, in subsection 5.3 and 5.4, it is assumed that a resolution plan is developed for an
IAIG.
110. In deciding whether or not a resolution plan is necessary, the group-wide supervisor
and/or resolution authority should consider at least the following (see CF 12.3.a):“The IAIG’s activities and its lines of business, for instance the type of insurance
products;
The number of jurisdictions where the IAIG operates;
The complexity of the IAIG’s group structure; andThe potential impact of failure of the IAIG on the financial system and real economy in
the jurisdictions in which the IAIG operates.”

Examples of criteria applied by jurisdictions, based on the Member Survey, include:





111.




5.3

Size of the insurer (eg total assets above USD 50 bln);
Market share of the insurer, considered globally and/or in specific lines of business,particularly those where substitutability would raise concerns;
Number of policyholders (eg more than a million policyholders and/or a certain
percentage of the population of the jurisdiction);
Type of insurance products; andInterconnectedness of the insurer with the financial system.
Ways to apply proportionality in the development of resolution plans include:
Limiting the content and level of detail of a resolution plan;
Limiting the level of detail of information requested from the insurer, and/or the level ofdetail in developing the resolvability assessment and strategy;
Implementing a phased approach whereby the focus initially is on the larger, more
complex insurers and other plans are only developed in later stages; and/or
Lowering the frequency of updating a resolution plan.
Information needs

112. Authorities need to ensure that they are able to obtain the information needed todevelop and implement the resolution strategy and plan (see CF 12.3.b). Also, CF 12.3.c
introduces a requirement for all IAIGs to have and maintain group-wide management
information systems (MIS) to respond on a timely basis to any information request, and ICP
12.3 requires other insurers, as necessary, to also have procedures in place to that same
effect (“to provide necessary information to a relevant organisation in a timely manner when
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the insurer enters into resolution”). Authorities should identify any impediments to providing
up-to-date and reliable information in a timely manner and require the insurer to address these,
where applicable.
113.


Relevant information needs may relate to:General information on the insurance group:
o

o
o
o
o
o


To facilitate the execution of certain resolution powers:
o
o

o


Information specific to legal entities, a mapping of legal entities to essentialfunctions, and a description of interconnectedness of group entities andrelevant intra-group transactions;
Insurance policies and benefits under those policies;
A description of the relevant lines of business carried out by the legal entitiesof the group and of the localisation of the policyholders;
The reinsurance coverage in place;
Assets backing insurance liabilities (and details of location and custodians,
fungibility of surplus assets between jurisdictions, etc.);
Insurance contracts or financial products of the insurer that could be prone to“runs”;

Information needed to facilitate the transfer of insurance business (including all
the assets and liabilities) to another insurer;
Information needed for the valuation of insurance business and for carrying out‘due diligence’ by any potential purchaser of all or parts of the insurance
business;
Information needed for the purpose of carrying out a run-off of the insurance
obligations;

Other:
oo

Policyholders covered by a PPS (where it exists), and the estimated amount or
proportion of protection provided; andInformation needed to facilitate continuity of essential services and functions,eg information about arrangements and service level agreements with internaland external service providers that support critical shared services.

114. When developing resolution plans and conducting resolvability assessments, thegroup-wide supervisor and/or resolution authority should aim at collecting the information in amanner that is efficient and limits the burden to the insurer. As a first step, therefore, it isadvised to request necessary information from other officials responsible for supervising thegroup. These could include legal entity supervisors in other jurisdictions or market sectors,
and also the group-wide supervisor when the resolution authority is a different agency or is anautonomous office within the supervisor’s agency. The resolution authority can then request
any information that is not (yet) available directly from the insurer. Also, it may be considered
to organise interactive workshops with the insurer to retrieve information necessary for the
resolution planning.
115. Another source of information may be the recovery plan, which, according to ICP 16.15
and CF 16.15.a, is required to be developed by all IAIGs and other insurers as necessary. For
instance, a recovery plan would provide inputs on the insurer’s operational business structure,
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legal structure, key jurisdictions in which it is active, entities covered by the plan, functions
and/or services that are significant for the continuation of business, key dependencies or interdependencies, and any other relevant information.
5.4

Key elements of a resolution plan

116. The remainder of section 5 discusses the key elements of a resolution plan, which willoften include:













An executive summary of the most important elements of the resolution plan, including
the resolvability assessment;
A description of the insurance group that outlines the group legal structure, its main
activities, its financial and operational dependencies and key financial and operational
characteristics;
A trigger framework for entry into resolution;
An analysis of the impact of the failure of the insurance group on other parts of thefinancial system, or on the real economy, including the identification of any financial
and economic function that need to be continued to achieve the resolution objectives;
A description of the preferred resolution strategy, which includes a mapping and a
description of the resolution powers available and considerations of appropriateness
dependent on relevant factors and scenarios;
An operational plan for the implementation of the resolution strategy;
A description of the governance for resolution planning and resolution process;A communication strategy to help manage expectations, and/or retain (or restore) the
confidence of market participants and policyholders; andAn analysis of the impact on the PPS (if applicable).

117. As indicated in ComFrame, “the group-wide supervisor and/or resolution authority
should lead the development of the group-wide resolution plan, in coordination with membersof the IAIG CMG, and involve the IAIG as appropriate”. In practice, in most jurisdictions, thegroup-wide supervisor and/or resolution authority develops and maintains the resolution plan,and not the insurer. In some jurisdictions, however, the insurer is required to develop andmaintain the resolution plan. In such cases, the group-wide supervisor and/or resolution
authority should provide oversight, review and non-objection or approval of the resolution plan.
The process should require correction of any deficiencies.
118. While the remainder of this section describes the development of the plan from theperspective of the supervisor and/or resolution authority, in cases where insurers play a largerrole in resolution planning, some of these may actually be the responsibility of the insurer. In
such cases, this guidance may be helpful for both the insurer (in developing the plan) and theauthority (in reviewing the plan).
5.4.1

Executive Summary

119. It may be useful to develop an executive summary of the main components of thegroup-wide resolution plan, in coordination with members of the IAIG CMG. It is considered to
be good practice to include a summary of the resolvability assessment (including possible
impediments to resolution), the most significant trigger resolution points, key resolution
strategies, and the operational plan for implementation. An executive summary would provide:

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Page 33 of 54A high-level overview of the resolution plan, including material changes since theprevious version of the plan;
Information about the governance of the resolution planning processes; andInformation about the key elements of the resolvability assessment.

120. The purpose of the executive summary is to serve as a roadmap to the resolution plan
to enable the group-wide supervisor and/or resolution authority, and the Board of the insurer
to the extent they are involved in the elaboration of the plan, to quickly understand and assess
the governance, trigger framework, resolution options and communication strategies for
effectively responding to a severe stress.
121. It may be helpful to use tables and flow charts to summarise these operational steps.
It may also be useful if the group-wide supervisor and/or resolution authority documents a
record of all material changes incorporated into the resolution plan as it is updated. The
executive summary can also serve as a useful aid for the group-wide supervisor and/or
resolution authority when reviewing and assessing resolution plans, as such a summary
should reflect any material changes made and outline the operation components for a credible
resolution plan.
5.4.2

Description of the insurer

122. A resolution plan should describe the insurer’s operational business structure, legal
structure, key jurisdictions in which it is active, legal entities covered by the plan, essential
services and/or functions that are significant for the continuation of the insurer, key
dependencies or interdependencies, key risks to the insurer, and any other relevant
information. This will enable group-wide supervisors and/or resolution authorities to assess
the implications of different resolution actions for the insurer. Specifically, a resolution planshould provide a description and overview of:

The insurer’s business divisions;
Financial and economic functions that need to be continued to achieve the resolution
objectives;
Essential services and functions, ie services and/or functions that are significant forthe continuation of the insurer (for example, shared services, such as information
technology services and outsourced functions);

and for groups, additionally:





5.4.3

The group’s corporate structure (eg a diagram), identifying also the location of thedifferent legal entities and respective supervisors and/or resolution authorities;
The legal entities that fall under each jurisdiction with more detailed corporate structure
diagram (for example the whole group for a single jurisdiction – ie intermediate holding
company); andThe legal entity(ies) that fall in scope of the resolution plan, with a more detailed
corporate structure including subsidiaries, branches, relevant lines of business,
reinsurance arrangements, counterparty risks, interconnectedness, ancillary (including
investment management) services arrangements and any outsourcing arrangements.
Entry into resolution

123. The resolution plan should clearly articulate the triggers for entry into resolution in therelevant jurisdictions and refer to any condition assessment(s), and the internal processes andPublicApplication Paper on Resolution Powers and Planning
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governance arrangements for determining that the resolution conditions have been met. The
group-wide supervisor and/or resolution authority may find it appropriate to present the
information in a summarised form in the resolution plan, referring to other documentation, ie
statutory or policy documentation, which provides the relevant information in more granulardetail. See section 3 for discussions on entry into resolution.
5.4.4

Analysis of potential financial stability impacts of failure124. The resolution plan should allow an assessment of its feasibility and credibility in lightof the likely impact of the insurer’s failure on the financial system and real economy, taking
into account the financial and economic functions that need to be continued to achieve theresolution objectives.
125. These functions should include those that are material for the financial system and thereal economy, at the international and/or national level. The identification of these functions
could be made taking into account the following elements:









The nature and scope of the activity and the material impact on third parties to carryout economic activity (considering volume and number of transactions, the number ofcustomers and counterparties materially impacted, the number of customers for which
the insurer is a significant insurance partner);
The significance of the insurer’s operations, which may be assessed on the basis of
its size, market share, external and internal interconnectedness, complexity and crossborder activities;
The nature of the customers and other stakeholders affected by the function, such asretail customers, corporate customers and public entities, taking into account possible
reputational effects on the insurance sector;
The potential impact of disruption of the function on markets, infrastructures,customers and public services; or
The potential losses to taxpayers, as well as possible pressures for government
interventions if the insurer fails.

126. The analysis of the impact of failure of an insurer should be related to the relevance ofthe business carried out by the insurer in a certain market, also considering the features of themarket and the substitutability of the insurer’s products. For instance, the impact of failure
could be very high if the failure caused a consistent reduction of the number of insurance
products offered in a certain geographic area, without the capacity of other insurers to readily
offer same or similar products.18 When a particular segment of activities is considered vital forthe real economy (eg air and road circulation, medical practice), the sudden withdrawal of
insurance coverage in that segment could cause the interruption of significant economic
activities. The likely impacts at various levels (supra-national, national, regional, local) should
be distinguished.
127. To develop resolution strategies, the group-wide supervisor and/or resolution authority
should have regard to insurance functions in light of their economic importance. For instance,
depending on the nature of the activities of the individual insurer, disruption of a particularfunction or discontinuity of specific types of coverage could have a material impact on thefinancial system or, more broadly, on the real economy.

18 This is often referred to the issue of “limited substitutability”.

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5.4.5Resolution strategy

128. A resolution strategy should set out the key elements of the proposed approach toresolution, setting out the actions necessary to implement the strategy and best achieve any
institution-specific resolution objectives. The strategy should set out the conditions for entry
into resolution (see section 3) and explain the activation of the operational resolution plan andfunding arrangements.
129.
The resolution strategy may also describe the key operational issues and theapproaches that may be adopted following resolution. The resolution strategy should address
the continuity of essential services and functions performed by non-regulated entities, bothwithin and outside of a group.
130. The strategy should provide a summary of the key options for resolving the failinginsurer in a way that safeguards financial and economic functions that need to be continued
to achieve the resolution objectives, public funds and financial stability, and otherwiseachieves relevant resolution objectives. The resolution strategy should also explain that theactivation of the resolution options depends on internal and external circumstances as well as
the potential sequence or combination of the resolution options.
131. The group-wide supervisor and/or resolution authority should develop a preferred
resolution strategy. The group-wide supervisor and/or resolution authority should develop apreferred resolution strategy that is best capable of achieving the institution-specific resolution
objectives given the structure and the business model of the insurance group, the resolution
regimes applicable to the legal entities of the group and the resolution tools available toauthorities in all relevant jurisdictions. The development of a preferred resolution strategy may
depend on many factors such as the existing structure and business model, the need forrecapitalisation or the degree of internal interconnectedness within the group. In addition, afall-back strategy should be developed in case the preferred strategy turns out to be infeasible.
132. The resolution strategy needs to recognise that resolution schemes play out very
differently depending on the type of business involved: for example, the difference between
contracts where premium is calculated year-to year and claims are closed shortly after the endof the policy period; long-duration claims that might be paid out for decades after the losses
have incurred; and long-term contracts where the premium paid in early years is intended tosubsidise the insurer’s long-term obligations when claims are much more likely to occur. Thisdistinction is important for liquidation as well as for non-liquidation alternatives. Both resolution
legislation, and PPS powers and operating plans where applicable, need to be designed withthis principle in mind.
133. The resolution strategy needs to be tailored to the specific risks to which eachindividual insurer may be exposed, the insurance functions that it provides and the potential
systemic impact of its failure, with the aim of protecting policyholders and, as applicable,
contributing to financial stability.
134. The resolution plan should contain the description of the preferred resolution
strategy/strategies that could be adopted, whereby a comparison can be made between a“TopCo” strategy (entry into resolution at the level of non-operating holding or sub-holding
company strategy) and an “OpCo” strategy (entry into resolution at the level of individual
operating entities), outlining the two approaches and the factors that would lead to preferenceof one over the other (eg, group structure/intragroup arrangements or the nature of the stress
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event triggering resolution, such as holding company debt or a particular operating company’s
loss portfolio), see Box 3.
Box 3: TopCo versus OpCo strategy
Certain types of insurers may be better suited to a resolution strategy that takes place at
the TopCo level in a manner that maintains the structure of the group and preserves
diversification benefits. The TopCo may be an insurance (or reinsurance) undertaking or aholding company that carries out no financial business other than acting as a holding
company. Group structures that may be more suited to a resolution strategy that takes
place at the TopCo-level typically have many of the following characteristics:






Fungibility of capital and liquidity between parent and subsidiary entities;
Systematic intra-group support with financial exposure between group entities;
Ability of the holding or sub-holding company to support its subsidiary entities
financially or provide intra-group guarantees;
Centralised group funding;Interdependencies arising from shared services provided by affiliates.

Group structures that meet these conditions typically include groups that pool risks andcapital in one place and that distribute centrally held capital through reinsurance contracts.
Although the determination of the preferred resolution strategy will be based on the
structure and business model of the individual insurer, it is possible that there will remain
obstacles to resolution that are related to the insurance group structure or business model(see section 6).
Group structures that may be more suited to a resolution strategy that takes place at the
OpCo level typically have many or all of the following characteristics:







Local subsidiaries managed as stand-alone entities with respect to governance andoften with only limited fungibility of capital and liquidity;
Local client basis;
Limited amount of intra-group transactions, executed at arm’s length;
Intra-group reinsurance that is generally conducted at arm’s length andcollateralised against default risk;
Intra-group shared services that are generally provided by separate legal entities
that are funded by revenues from the services they provide; orLegal and operational separability.

These conditions may be met by subsidiary-based insurance groups (for example, many
insurance legal entities that provide direct life and non-life insurance and similar businessmodels).
135. Resolution strategies should be adaptable to different scenarios by setting out
alternative options that may be used. Accordingly, resolution plans should identify and set out
how to execute options for actions (including a fall-back option(s) where preferred options are
not available) for a range of severe scenarios, including both idiosyncratic and market wide
stress with failure at a parent level and, alternatively, isolated failure of one or several legal
entities. Resolution strategies and plans should also distinguish between fast and slow-moving
scenarios, as the adequate responses to these might differ materially. Especially when there
is no preferred strategy and the choice among available tools may depend on actual
circumstances, the supervisor and/or resolution authorities may benefit from defining a limited
set of scenarios to determine the preferred strategy for each scenario. The range of scenarios
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should be reasonably comprehensive (eg, asset shock, liability shock, idiosyncratic shock(fraud or cyber risk) and/or combination).
5.4.6

Operational aspects

136. The resolution plan should provide operational detail of how the strategy might be
implemented. The plan may include the following elements:






Cross-border aspects of the operational plan and actions (recognition or support) thatwill be needed by authorities in other jurisdictions to ensure that resolution measuresare effective;
Transfer of reinsurance (if any) and impact on cover;
Operational and practical arrangements for ensuring continuity of cover and payment
under insurance policies; andTreatment of any derivatives portfolio, and possible need to maintain or replacehedges.

137. In resolution planning, the group-wide supervisor and/or resolution authority should
also take into account the time required to implement the resolution options. In particular, insome jurisdictions, the courts may play a role in the application of certain resolution powers.
Where the implementation of resolution options requires judicial authorisation or intervention,authorities should have regard to any implications for timing that this process may entail. In
the event where time constraints implied by the resolution strategy and the preferred powers
could jeopardise the resolution objectives, authorities should consider alternative powers thatwould not be subject to similar constraints.
138. The operational plan should also discuss group risks. Paradoxically, failure at a parent
level can sometimes be more “isolated,” as a practical matter, than failure of one or more legal
entities. In a simplified example, it could be a matter of writing down debt as a failed investment
risk, and either maintaining the group as a going concern or selling off some functional
business units. But stress at the parent level has its unique challenges as well, in particular,
preventing contagion to the operating companies (including blocking the flow of assets
upstream), and in some jurisdictions, the complication that the parent company will be
resolved as an ordinary business corporation, with no formal institutional role for insurance
supervisors or resolution authorities.
139. The group-wide supervisor and/or resolution authority should develop a clear
understanding of a number of factors relevant for triggering resolution actions, including:The resolution triggers under applicable regimes;
The processes needed to coordinate action among the authorities involved in thepreceding period as it becomes certain that failure will take place; andAny automatic effects (domestically or in other jurisdictions) of triggering resolution.

140. Where a resolution strategy provides for the preservation of parts of the business ofthe failed insurer, for example through recapitalisation via bail-in or through the use of a bridge
institution, the resolution strategy and the resolution plan need to set out clearly how exit fromthe resolution process will be achieved. This includes setting out measures to restore theviability of the operations that the resolution will preserve, for example, transfer of decision
making and of other governance functions to a new Board and Senior Management. It also
includes the consideration of legal requirements that need to be met, including, for example,
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restrictions under competition law; governance and requirements under securities laws (suchas listing rules); and suitability assessments for new management.
5.4.7

Resolution planning governance141. This subsection addresses appropriate governance arrangements for resolution plan
processes. Each jurisdiction should appropriately translate processes and governance in linewith its resolution framework.
142. As mentioned in paragraph 117, in most jurisdictions, the supervisor and/or resolution
authority develops and maintains the resolution plan. In some jurisdictions, however, theinsurer is required to develop and maintain the resolution plan. In such cases, the group-wide
supervisor and/or resolution authority should provide oversight, review and non-objection orapproval of the resolution plan. The process should require correction of any deficiencies. In
addition, the insurer should be required to have a robust governance process to support its
resolution planning and this should be integrated into the insurer’s overall Corporate
Governance and Enterprise Risk Management.
143.
For resolution to be effective, authorities need to have a clear governance structure
for appropriate oversight of the resolution planning processes. Thus, authorities should havea documented process that provide a clear and sufficiently detailed description of theoperational development process, the schedule and process for updating resolution plans,
and operational procedures for activation of the resolution plan and any escalation processes,
including a process for interaction with the insurer in resolution planning.19
144. In order to enable the resolution authority to draw up a resolution plan it is necessarythat it has the power to require the insurer to submit all necessary information for thedevelopment of the resolution plan (see CF 12.3.b). The authority may also use other avenues
to request information, as discussed in subsection 5.4.
145. A formalised governance process around developing, maintaining and updating theresolution plan will benefit from the participation of all relevant authorities involved insupervision and resolution of an insurer; and were appropriate, CMGs and the insurer itself. A
governance process that includes such active participation in the development of theresolution plan will increase the likelihood of a feasible resolution while meeting important
policy goals. For example, a successful resolution of an insurer would not cause severe
systemic disruption and/or expose taxpayers to loss.
146. The resolution plan should also have an embedded governance process for monitoring
resolution triggers and for activating the resolution plan, which includes a description of the
key roles and responsibilities of the authorities, stakeholders and key persons relevant in theplan.
147. Timing is critical in the ability of resolution plans to achieve their objectives. As eventsand stressors may materialise at short notice and/or within short periods of time, it is essentialthat the event or stressor is quickly recognised and the resolution plan is activated in a timely
manner, even though full resolution may take some time. Clear governance policies andprocedures should be developed and maintained to support this.

19 Where court orders are required to apply resolution measures, resolution authorities should take this into accountin the resolution planning process, so as to ensure that the time required for court proceedings will not compromise
the effective implementation of resolution actions.
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148. Resolution plans should not commit authorities to take any action without firstevaluating relevant information and deliberating on the best course of action. In fact,
authorities may, in some circumstances, exercise flexibility and conclude that implementationof resolution options may be unnecessary, premature or no longer the best alternative, basedon an evaluation of the relevant information. It can be helpful for the authorities to consider
their resolution options through development of operational guides or manuals, but this should
not bind or limit the actions taken when stress actually occurs.
149. The resolution plan should establish adequate procedures for notifying relevant
authorities of an emerging stress scenario, and to share plans on the resolution powers
contemplated for implementation, including adequate time and governance controls. Keeping
other involved supervisors and/or resolution authorities informed is particularly important forgroups with significant cross-border operations. In such cases, relevant authorities may
benefit from establishing coordination or information sharing agreements (see section 7).
5.4.8

Communication strategy

150. Before, during and after resolution, the group-wide supervisor and/or resolution
authority need to be in regular contact with insurer’s management and also needs to consider
communication with external stakeholders, including policyholders and other creditors. As
such, as part of the resolution planning, a communication strategy should be developed inadvance. A communication strategy would describe means for effective and clear
communications with relevant stakeholders, how to manage external stakeholders’expectations, and how to retain (or restore) their confidence if necessary. In the lead-up to an
actual resolution, the communication strategy may need to be updated into a concrete
communication plan.
151. The development of the communication strategy should be led by the group-wide
resolution authority and coordinated with the CMG to ensure consistent creditor and market
communications across jurisdictions. When appropriate, the resolution authority should takeadvantage of the communication infrastructure of the insurer in resolution to delivercommunications, and consider any extra resources that will be needed to support
communication to creditors and the market.
152. The communication strategy should also consider circumstances where confidentiality
needs to be maintained regarding the resolution strategy or the exercise of resolution powers.
When developing the communication strategy, the group-wide supervisor and/or resolution
authority should be mindful of any legal requirements regarding disclosure and confidentiality
around information sharing (see ICP 3 (Information Sharing and Confidentiality Requirements)
and ICP 20 (Public Disclosure)).
153. The communication strategy should provide clear unified messaging, and should cover
all relevant stakeholders. This could include:







Shareholder(s);Employees;
Policyholders and other creditors;
Insurance intermediaries;
Relevant financial market participants, including key counterparties in reinsurance orderivative contracts and FMIs;
Other interested parties, such as rating agencies;

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Media and general public; andAdministrative or judicial bodies. The communication strategy should clearly identify
the moment when the supervisor and/or resolution authority is expected to notify therelevant authorities in accordance with jurisdictional law and resolution regime policy.

In addition, it would be helpful to also include a concrete list of all persons or institutions (egPPS, other regulators in jurisdiction) that will need to be informed.
154. The communication strategy with external stakeholders should consider possible
options for the detail and timing of information to be provided, and the level and form ofcommunication. It may also be needed to have separate communications for the holding
company versus legal entities, as appropriate. These communications may support theeffectiveness of certain types of resolution actions. The communication strategy should also
consider website updates and possible joint CMG communications strategy.
155. The communication strategy should address the different communication tools to be
used, depending on the circumstances and the stakeholder involved, which may include
written notices, press releases, conference calls and physical meetings. Examples ofcommunication channels for policyholders may include:

Agents and employees who are in direct contact with policyholders (contact centre andcustomer relationship managers);
Proactive communication (websites, press releases, email and social networks) inorder to ensure real time communication, particularly in the event of an emergency;
andReactive communication (inbound calls in contact centres, emails, online chats).

156. The supervisor and/or resolution authority should also develop a comprehensive
creditor and market communication strategy with the objective of promoting confidence,
informing creditors and the market of the implications of the resolution, limiting contagion, andavoiding uncertainty and potential runs.
157. The supervisor and/or resolution authority, in coordination with other relevant
authorities, should make a public announcement of the resolution action as soon asreasonably practicable following entry into resolution, unless the measures that have beentaken are confidential. The group-wide resolution authority’s initial communication should
provide clear and robust information to mitigate the risk of inconsistent communications andlimit the need for subsequent additional announcements. Relevant host authorities should
consider making a corresponding announcement alongside that made by the home resolution
authority, and home and host authorities should coordinate the timing and content of theirrespective announcements in line with their responsibilities.
5.4.9

Impact on the PPS

158. For jurisdictions that have a PPS, considerations should be made for the potential
scope and magnitude of impact that the resolution plan may have on the PPS.
159. As part of the resolution planning process, the resolution authority could consider,
given the PPS specific coverage scope, eligibility, and protection limits, the extent that theprotection coverage provided by the PPS could provide loss-absorbing capacity in the
resolution of the insurer.

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160. For example, analysing the breakdown of the policyholders that are eligible/ineligible
and insurance liabilities that are protected/unprotected could assist the resolution authority inunderstanding:The total value of eligible policyholder liabilities protected by the PPS;The total value of policyholder liabilities that are neither eligible nor protected, andtherefore show the total value of policyholder liabilities where any losses would be
imposed directly on the policyholder; andThe extent to which the PPS may be required to provide resolution funding dependingon the severity of the insurance failure. For example, the anticipated financial impact
on the PPS if the insurer had a shortfall in assets of X million, Y million, and Z million.

161. The resolution authority could also consider the ‘affordability’ of the loss absorbing
capacity provided by the PPS depending on the structure of its funding model. For example,
if the PPS is funded by an ex-post levy on the industry, resolution authorities may find it
beneficial to understand the magnitude of losses required to exhaust various degrees ofcapacity of the PPS based on any limits of its levying capacity. Additionally, if the PPS hasaccess to a credit facility, the time needed for the PPS to replenish its financial resources andrepay any loan to cover the funding provided could also be considered.

6

Resolvability Assessments

162. If a resolution plan is required for an IAIG, then it is also required for the group-wide
supervisor and/or resolution authority, in coordination with the IAIG CMG to undertake
resolvability assessments (see CF 12.3.b).20 The (group-wide) supervisor and/or resolution
authority may also see benefit in conducting resolvability assessments for other insurers
where they have determined it to be appropriate to require resolution planning.
163. A resolvability assessment allows the group-wide supervisor and/or resolution
authority to evaluate the feasibility and credibility of available resolution strategies. A
resolvability assessment also allows the measurement of the level of readiness, of both theresolution authority and the insurer, to implement the resolution strategy if necessary.
164. Furthermore, a resolvability assessment may support the consideration of the systemic
impact of the insurer to the financial system and real economy. The group-wide supervisor
and/or resolution authority may also consider implications to financial stability if the resolutionplans of several insurers would result in turning to the same sources of capital.
165. CF 12.3.b requires resolvability assessments to be undertaken on a regular basis. For
example, this could be done an on annual or biennial basis as considered appropriate.
Resolvability assessments should also be updated when there are material changes to theinsurer’s business or structure, or any other change that could have a material impact on the
resolvability assessment. The group-wide supervisor and/or resolution authority may use theresolvability assessment in an iterative manner so as to refine the resolution planning process
and the resolvability of the insurer.
166.

The resolvability assessment could benefit from the following elements:

20 CF 12.3.b.1 states that “resolvability assessments should be conducted at the level of those entities

where it is expected that resolution actions would be taken, in accordance with the resolution strategies
for the IAIG, as set out in the resolution plan”.
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Page 42 of 54Regularly assessing the plan for the insurer’s resolvability. The group-wide supervisor
and/or resolution authority may check whether the plan can be activated andimplemented in a timely manner and that the operational procedures andimplementation governance of the plan are effective. This may include the assessmentof the availability of timely, sufficiently detailed and accurate information to support aneffective resolution.
A process for assessing if the resolution strategies will be capable of achieving its
objectives:
o
o

o










6.1

Protecting policyholders, notably limiting the negative impacts on policyholders;Contributing to financial stability, notably ensuring that those financial andeconomic functions that need to be continued to achieve the resolution
objectives can be continued; andMinimising reliance on public funds.

As part of the resolvability assessment, there should be a process of identifying any
impediments to resolution that may arise from the legal and or operational structure of
the insurer (see section 6.1).
Assessment of operational resolvability could focus on improving execution andtraining for escalation processes and communication strategies, or engaging insimulation exercises working through the resolution plan in a time-accelerated exercise
with relevant key persons. It should be noted that such simulation exercises may be
resource-intensive and that different exercises may focus on different aspects of theresolution plan, such as effectiveness of resolution options, communication or
governance.
The insurer’s existing stress testing framework can also be an effective way to test
areas of the credibility of the resolution plan, particularly in relation to the menu ofresolution options and the calibration of the trigger framework.
As part of resolvability assessment, there should also be an assessment if there areappropriate mechanisms in place, including adequate legal tools and operational
capacity, to ensure effective coordination between the group-wide resolution authority
and other involved resolution authorities in carrying out resolution.
There should also be a process to ensure that the results of the resolvability
assessments contribute to the on-going improvements of the recovery and resolution
planning and plans of the insurer. This should include consideration of the types ofresolution capabilities that insurers may need to build in order to make plans morecredible at the point of execution.
Resolving impediments

167. Where impediments are identified, authorities should have a process for requesting
insurer to take prospective action to address such obstacles so as to improve its resolvability
where necessary. Any lessons learned should be incorporated in the update process.
168. Thus, the regular conduct of resolvability assessments should help identify any
impediments (barriers) to resolution that may arise from, for instance, the legal and operational
structure of the insurer.
169. Any action required to resolve impediments should be appropriate and proportionate.
The decision to impose any such requirement should take due account of the effect on the
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soundness and stability of the ongoing business. Also, as indicated in ComFrame guidance,
the insurer may be given the opportunity to propose its own prospective actions to improve its
resolvability.
170. Examples of impediments that may be identified are listed below. These examples areillustrative and should not be considered an exhaustive list.
Intra-group considerations (which may materialise in an OpCo strategy):
o

o






7

Financial interconnectedness. This may include intragroup reinsurance, loans,guarantees and capital support deeds. Also, noting what is collateralised andwhat is not; andOperational dependencies. This may include custodian services with third
parties, intragroup IT services, treasury services, asset management services,
staff signing authority, critical staff (ie decision makers outside of the legal entity
in resolution);

Legal issues. This may include legal risk of implementation of a specific resolution
power;
Complex policies. Complexities could for instance derive from reinsurance
arrangements, guarantees which would fall away in case of a transfer (due to policy
wording), or similarly policy benefits that are non-transferable; andTermination of derivatives and reinsurance.21 Regulatory intervention is not an
uncommon termination clause in financial contracts.

Cooperation and Coordination

171. Cooperation and coordination have proven to be essential for effective crisis
management. Lack of cooperation and coordination, where all involved parties seek their own
interest without considering the effectiveness of the overall resolution process, could lead toa suboptimal resolution outcome, particularly in cross-border cases.
172. ICP 12.0.12 states: “(…). Cross-border coordination and cooperation, including
exchange of information, is necessary for the orderly and effective resolution of insurers that
operate on a cross-border basis.” Indeed, cooperation and coordination are necessary bothfor enhancing preparedness for crises and for facilitating the management of a resolution. This
corresponds to two different stages of a crisis management flow: ie the preparation phase ina “business-as-usual” environment and the actual management of the crisis in the resolution
phase. This section has been structured along these lines.
173. Cooperation and coordination both in normal and crisis times must be undertaken withconfidentiality in mind. Cooperation and coordination require exchanging information that may
be of (highly) confidential nature. If leaked, it could deteriorate the situation of a troubled
insurer even further, complicate the resolution process and potentially affect financial markets.
This calls for a “need-to-know” principle when sharing the information among interested
parties. In line with ICP 3, supervisors should obtain from and share information with relevantsupervisors and authorities subject to confidentiality, purpose and use requirements.
21 This impediment is likely to only be relevant in those jurisdictions that do not yet have temporary stay

powers, which, in line with CF 12.7.a, is required to be available to resolution authorities that are
responsible for the resolution of an IAIG.
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174.

Although the primary function of a PPS is the compensation of policyholders for losses
in the event of a liquidation, in several jurisdictions PPSs also play a relevant role in the
resolution process, eg funding the transfer of the insurer’s portfolio or acting as a bridge
institution. As a consequence, cooperation and coordination with the PPS, where they exist,
should also be considered to the extent allowed by the legislation, and taking into accountconfidentiality requirements. This cooperation and coordination could be considered both innormal times (eg sharing the necessary information with the resolution authorities, supervisors
and CMGs in order to develop the resolution strategies and, more in general, for the resolution
planning purposes) or in times of crisis (involving them in the resolution process). This will
help the PPS to carry out its duties more effectively, contributing to a better outcome of theresolution process.
7.1

Cooperation and coordination in normal times

175. The resolution of an insurer may have implications beyond the jurisdiction of the headof the insurance group. This is true for any group with cross-border business, in particular
IAIGs. Therefore, ComFrame in ICP 25 requires CMGs to be set up for all IAIGs.
176. In normal times, cooperation and coordination should focus on the exchange of views
and the development of all necessary processes and procedures to prepare for an orderly
resolution when needed. This could include the following issues:






Progress in coordination and information sharing within the CMG and with hostauthorities that are not represented in the CMG;
Any differences in legal resolution frameworks between jurisdictions, such as related
to available resolution powers or applicable triggers for entry into resolution in therespective jurisdictions;
The recovery and resolution planning process for an insurer under institution specificcooperation agreements; andThe resolvability assessment of the insurer.

177. Cooperation and coordination can take different forms. An example could be the
CMGs. CF 25.7.a requires the group-wide supervisor to establish a CMG with the objective ofenhancing preparedness for the recovery and resolution of the IAIG.
178. As noted in ICP 12.0.4, “whatever the allocation of responsibilities between the
supervisor and the resolution authority, a transparent and effective resolution regime should
clearly delineate the responsibilities and powers of each authority involved in the resolution of
insurer. Where there are multiple authorities responsible for the resolution of insurers, theresolution regime should empower the relevant authorities to cooperate and coordinate witheach other.” Also the FSB Key Attributes stress that there should be a certain degree of
operational independence, to avoid potential conflicts of interest.22
179. Authorities may also decide to extend these cooperation platforms to other insurers
with cross-border operations that are not classified as IAIGs. Alternatively, where the setup ofsuch a body is not deemed necessary, another type of arrangement could be considered, suchas the IAIS Multilateral Memorandum of Understanding (MMoU) or the supervisory college.
22 See the FSB KAAM (2020), notably KA 2.5, which stresses that “[t]he resolution authority shouldhave operational independence consistent with its statutory responsibilities, transparent processes,
sound governance and adequate resources and be subject to rigorous evaluation and accountability
mechanisms to assess the effectiveness of any resolution measures” and its explanatory note EN 2(F).
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Parties to the cooperation agreement(s) should include all relevant authorities within thejurisdiction that could be involved in the resolution process in cross-border situations. The
participation, besides the group-wide supervisor and/or resolution authority, would normally
include relevant involved supervisors and/or resolution authorities, taking account of themateriality and proportionality principle (see ICP 25.7).
180.
Cooperation with host authorities of IAIGs that are not represented in the CMG, andcooperation with host authorities of other internationally active insurers, should follow the
principle of proportionality. A group-wide supervisor or resolution authority should consider tocooperate with a host authority for crisis preparation if the insurer’s activities are significant in
the host jurisdiction (eg they represent a sizeable part of the market in the host jurisdiction),even though the part of the host jurisdiction in the total activity of the insurer is small.
7.2

Cooperation and coordination in times of crisis

181. In crisis times, the main objective of cooperation and coordination should be achievinga cooperative solution with authorities in other jurisdictions who are concerned with theresolution of the insurance group (ICP 12.5). Intensive and continuous dialogues, sharing all
relevant information and reciprocal trust among supervisors and resolution authorities are key
factors of success of the resolution process.
182. The management of the crisis should ideally rely on the preparatory work carried out
in normal times. Although crises cannot be foreseen in all their dimensions and a high degreeof flexibility is needed, it is clear that the preparatory work will be useful to ensure the successof the resolution process, eg, to understand what functions should be preserved in resolution,
which powers are available or what the resolution strategy should be.
183. Two of the main elements of cooperation and coordination in a crisis situation are theexchange of information between supervisors and resolution authorities and effective
communication with external stakeholders.
184. Ideally, the nature and scope of all relevant information to be shared in crisis times
should be agreed in normal times. This could be done, for example, by developing a templatethat includes all information expected to be relevant in times of crisis, organised around thefollowing topics:

Background information. It is important to know what triggered the stress of thecompany, the possible impact on other parts of the financial system and the real
economy and the current state of basic financial information on assets, liabilities, own
funds, technical provisions, capital requirements, rating changes, etc;
Measures taken. Timely notification to resolution authorities where recovery measures
are taken in order to improve their preparedness, followed by a description of therecovery measures taken and an explanation of the reasons why they were noteffective. Any resolution action that has already been taken should also be identified
and described; andPossible actions to take. As stated in ICP 12.5.6, cooperation and coordination are
crucial when considering resolution actions such as ordering the insurer to ceasebusiness (for example, when the insurer has overseas branches), freezing the insurer’s
assets, and/or removing management of overseas branches, subsidiaries, or holding
companies.

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185. The effective exchange of information also requires identifying and removing (to theextent possible) all legal, regulatory or policy impediments that hinder the appropriate
exchange of information. For this reason, it is important that all relevant parties participate incooperation arrangements. Furthermore, the supervisor should assess whether insurers
required to maintain MISs are able to produce all necessary information on a timely basis,
both in normal times and in the course of the resolution process (see section 5.3).
186. Aligning communication during a crisis has proved to be very important. Misaligned
timing or messages can increase the uncertainty and exacerbate the impact of the crisis andhinder the resolution process. A coordinated communication strategy should be described in
the resolution plan (see section 6.10) and should be implemented by all parties involved in the
resolution process.
7.3

Coordination agreements

187. The functioning of a CMG is supported by a coordination agreement, which according
to CF 25.7.a and its guidance, describes at least the roles and responsibilities of the respective
members of the IAIG CMG and the process for coordination and cooperation, including
information sharing, among members of the IAIG CMG.
188. Coordination agreements need to be firm-specific and support the development andimplementation of the resolution strategy and operational plan. They should be agreed by thegroup-wide supervisor and other involved supervisors (or resolution authorities) represented
in the CMG and in particular they should:















Establish the objectives and processes for cooperation through CMGs;
Define the roles and responsibilities of the authorities in the recovery and resolution
planning phases and during a crisis;
Set out the process for information sharing before and during a crisis, including sharing
with any host authorities that are not represented in the CMG and the PPSs, if
applicable, for the resolution planning purposes;
Set out the processes for coordination in the development of the resolution plan,
including parent or holding company and significant subsidiaries, branches andaffiliates that are within the scope of the agreement, the PPSs, if applicable, and forengagement with the insurer as part of this process;Set out the processes for coordination among home and host authorities in the conductof resolvability assessments;
Include agreed procedures for the group-wide supervisor to inform and consult hostauthorities, and PPSs if applicable, in a timely manner when there are material adverse
developments affecting the insurer and before taking any significant action or crisis
measures;
Include agreed procedures for the host authority to inform and consult the group-wide
supervisor in a timely manner when there are material adverse developments affecting
the insurers and before taking any discretionary action or crisis measures;
Provide an appropriate level of detail with regard to the cross-border implementationof specific resolution measures, including the use of a bridge institution and bail-in
powers;Provide for meetings to be held regularly, or when there are material changes,
involving senior officials of the home and relevant host authorities, to review therobustness of the overall resolution strategy; andPublicApplication Paper on Resolution Powers and Planning
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Provide for regular reviews by appropriate senior officials of the operational plans
implementing the resolution strategies.

189. As regards information exchange within CMGs, the IAIS MMoU provides a global
framework for cooperation and information exchange between insurance supervisors. All
signatories to the IAIS MMoU undergo a validation of their laws and regulations to demonstratecompliance with the MMoU’s strict confidentiality regime, based on the confidentiality
requirements in ICP 3. For this reason, if all relevant parties are signatories to the IAIS MMoU,
it is the preferred framework for multilateral information exchange.

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Annex: Examples of relevant existing and proposed legislation on
resolution powers
Based on the Member Survey, the availability of resolution powers varies widely. Whereassome powers are available in almost all Member jurisdictions that participated in the Survey,
some other powers have been established in legislation by only a few jurisdictions. As noted
in section 1.5, the Survey was conducted during Q4 2019 and the implementation of resolution
frameworks is still evolving.
The more widely available resolution powers (where around 90% of jurisdictions indicate thispower is available), include: to prohibit the payment of dividends to shareholders or thetransfer of assets; withdraw the licence / put the insurer into run-off; retain, remove or replace
Members of the Boards and other Key Persons; to take control of the insurer or appoint an
administrator; and to initiate liquidation.
Resolution powers that are available to a majority of surveyed Members (around 60 to 80% ofjurisdictions indicate this power is available), include: prohibit the payment of variable
remuneration (including claw-back); impose a temporary suspension of payments tounsecured creditors; override rights of shareholders; sell or transfer the shares of the insurer
to a third party; transfer or sell the whole or part of the assets and liabilities to a solvent insurer
or other third party; and terminate, continue or transfer certain types of contracts.
Resolution powers that are available to only a minority of surveyed Members (between 35%
to 50% of jurisdictions indicate this power is available23), include: restructure, limit or write
down liabilities (including insurance liabilities), and allocate losses to creditors andpolicyholders; transfer any reinsurance associated with transferred insurance policies without
the consent of the reinsurer; temporarily restrict or suspend the policyholders’ rights ofwithdrawing their insurance contracts; stay rights of the reinsurers of the ceding insurer inresolution; establish a bridge institution; take steps to provide continuity of essential services
and functions; and temporarily stay early termination rights associated with derivatives andsecurities financing transactions.
The remainder of this Annex provides some examples of jurisdictions that have establishedresolution powers into jurisdictional legislation, or are in the process of doing so. Some of thematerial referred to in this Annex may not be available in the English language.
Australia
In 2018, the Financial Sector Legislation Amendment on Crisis Resolution Powers and Other
Measures came into effect, which applies to the financial sector as a whole, including
insurance.


The Final Act can be found under this link.
The explanatory memorandum is available under this link (see notably page 7 onwards
for a summary overview).

23 Some of these powers are required in ComFrame only, to facilitate the resolution of IAIGs.

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European Union (EIOPA)
On 17 December 2020, EIOPA published its Opinion on the 2020 Review of Solvency II24,
which recommends a comprehensive framework for the resolution of insurers, including:






the designation of a resolution authority in each Member State, to be granted a set ofresolution powers to be exercised in a proportionate way;a list of objectives for resolution without an ex-ante predefined ranking;the introduction of pre-emptive recovery and resolution planning requirements. These
requirements should cover, respectively, a “very significant share” and a “significant
share” of each national insurance market; andthe establishment of cross-border cooperation and coordination arrangements
between national resolution authorities for crisis situations and for the safe and secureexchange of information between jurisdictions.

With regard to resolution powers, EIOPA has proposed a comprehensive list, in line with thelist provided under ICP 12.7. EIOPA also believes that traditional resolution tools, such as
portfolio transfer or (solvent and insolvent) run-off, which have proven to be adequate in thepast, should be given priority when resolving insurers. The appropriateness of the use ofresolution powers should be assessed on a case-by-case basis, and the use of powers should
be subject to adequate safeguards, in particular the NCWOL principle.
FranceFrance has introduced a recovery and resolution framework at the end of 2017, whose
provisions came into force in 2018 and 2019. The framework provides as objectives of aresolution action:

the protection of policyholders’ interests;
the projection of financial stability and of public funds; andthe maintenance of critical functions.25

These objectives are not ranked. A resolution action can be taken if it better achieves one orseveral of these objectives, than would “ordinary” (= judicial) liquidation.
The framework also provides details of recovery and resolution planning, where both
requirements have the same scope. The scope includes all insurers with (consolidated)balance sheet above EUR 50 bln, and insurers with “critical” functions. All in all, ≈ 90% of theFrench insurance sector (in terms of size of balance sheet) is submitted to planning.
Relevant texts (in French) can be found here (1) (law), here (2) (decree) and here (3) (subdecree).

24 See in particular the documents ‘Opinion’ and ‘Background Analysis’, the Chapters 12 on recovery

and resolution.
25 Critical functions" here means activities, services or operations of [an insurer] which have thefollowing characteristics: they are provided by [Insurer] to unrelated third parties; the inability of [Insurer]
to continue carrying on these functions would be likely to have a significant impact on financial stabilityor on the real economy; [Insurer] cannot be replaced for providing those functions at a reasonable cost
and within a reasonable time (see link). See also a note (in English) on the identification of critical
function of insurers.
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ItalyIn Italy, there is no resolution regime in place for the insurance sector yet. However, most of
the resolution powers are available in the current national framework and exercised bydifferent bodies (supervisory authority, Ministry for the Economic Development, court, special
administrators, commissioners, and liquidators) within the supervisory actions, theextraordinary administration and the compulsory winding up of the insurer.
Where particular market conditions or insurer-related circumstances occur, IVASS may, forinstance: limit or suspend the allocation of remunerations; prohibit or limit the distribution ofdividends and other assets; prohibit insurers to carry out certain operations, also of corporate
nature, or order limitations, temporary restrictions or deferral of some kinds of operations or
options that the policyholders may carry out; order to strengthen the systems of governance,
including risk containment; order to remove one or more corporate officers or holders of key
functions; prohibit the writing of new business; or appoint an administrator or a manager totake over the control of, and manage, the insurer.
These powers are envisaged by art. 188 (3-bis) and by Title XVI of Code of Private Insurance
which includes safeguards, reorganisation and winding up measures. In particular, windingup proceedings for an insurer are defined from article 245 to article 265 of the Insurance Code,while specific provisions concerning the winding up of the companies belonging to an
insurance group are ruled in art. 276 and further.
The Netherlands
On 1 January 2019, the Act on the Recovery and Resolution of Insurers came into effect.
De Nederlandsche Bank published a factsheet that provides information on several
key aspects of the act, including on the resolution tools and on resolution planning.
The Act on Recovery and Resolution of Insurers (only available in Dutch)

Romania
The framework regarding the recovery and resolution of insurers consists of both the law
adopted by the Romanian Parliament (Law no. 246/2015) and the rules issued by the FSA (11rules). The main issues that are addressed in the recovery and resolution mechanism are
related to:







Recovery and resolution planning;
Early intervention measures;
The objectives of the resolution;
Triggering the resolution;
Resolution tools; andThe mechanisms for financing the resolution.

The (main) instruments of resolution are: sale / transfer of the activity and the portfolio and thebridge institution. These instruments are complemented by the competence to reduce thevalue or convert debt into relevant equity instruments.
At the moment there are 10 insurers that meet the legal requirements regarding the mandatory
planning of recovery and resolution. These requirements relate to exceeding a market shareof 5% or the value of the insurer's gross technical provisions exceeding 5% of the total valueof gross technical provisions at market level.
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The resolution fund for insurers is administered by the Insured Guarantee Fund, has
accumulated resources amounting to over 52 million lei, and these resources consist mainlyof contributions from insurers (0,4% from received premium for non-life and 0,25% from life).
Switzerland
Currently applicable insurance supervision law obliges the Swiss Financial Market
Supervisory Authority (FINMA) to order bankruptcy proceedings as soon as an insurance
undertaking gets into financial difficulty. However, restructuring would often be better from theinsured parties' standpoint, as they generally have an interest in seeing their insurance policies
continue.
On 21 October 2020, the Swiss Federal Council adopted the dispatch on a partial revision of
the Insurance Supervision Act. The bill closes the existing gap by means of the proposed rightto restructure, thereby strengthening consumer protection. There are formal and material
provisions.
Formal aspects include, among other things:






Restricting creditors’ right to appeal;
Lifting of the suspensive effect for decrees in insolvency law;
Empowering FINMA to open and perform a formal recovery procedure;
Engaging a recovery mandatary to assist it in performing its duties; andAuthorising FINMA to issue implementing provisions.

The material recovery provisions serve to enable recovery within a company, as well as
recovery through the transfer of insurance portfolios to another insurer and transfer to a rescuecompany (~bridge institution).
Parliamentary debates concerning the partial revision of the Insurance Supervision Act havestarted in 2021 and are ongoing.
United Kingdom
Currently, there is no UK domestic resolution regime for insurers. In addition to some existing
modifications to the UK corporate insolvency regime specifically for insurers, existingarrangements for dealing with insurers in difficulty include the use of various powers under the
Financial Services and Markets Act 2000 (FSMA) by the Prudential Regulatory Authority(PRA). To take some limited examples:
Section 55J of FSMA: Variation or cancellation on initiative of the regulator: the PRA may, of
its own initiative, vary or cancel a PRA authorised person’s Part 4A permission in certain
circumstances. This power includes the ability to both the withdrawal of permission to write
new business (ie to place an insurer into run-off) and the withdrawal of the permission to carryout insurance contracts, and can extend to all or specific lines of business.
Section 55M of FSMA: Imposition of Requirements by the PRA: the PRA may impose, vary,or cancel requirements on a PRA-authorised firm in certain circumstances. This can include,
but is not limited to dividend/remittance payments or requiring PRA non-objection todividend/remittance payments.
Section 192C FSMA: Power to direct an unregulated parent holding company: the PRA may
in certain circumstances direct a qualifying parent undertaking to take specified action or
refrain from taking specified action.
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Part VII of FSMA: An insurance business transfer is a regulatory mechanism, governed byPart VII of FSMA which allows a (re)insurer to transfer (re)insurance business from one legal
entity to another, subject to the sanction of the court without obtaining the consent of individual
policyholders. The procedure is often used to give effect to group reorganisations andconsolidations. An Independent Expert is required to report to the Court on the impact of the
proposed transfer on the various groups of affected policyholders
Section 377 of FSMA: Reduction in value of contracts as an alternative to winding up: theCourt has the (as yet untested) power to reduce, subject to such conditions (if any) as it may
determine, the value of one or more of any of its insurance contracts, as an alternative towinding-up. S.377 applies in relation to an insurer which has been proved to be unable to pay
its debts. This provision is aimed at expediting the payment on or transfer of the contracts inquestion, in an attempt to avoid any delays associated with leaving such matters to beresolved at the end of a lengthy insolvency process.
Under Part XXIV of FSMA, the PRA is given extensive powers to initiate and become involved
in insolvency proceedings in relation to insurance companies.
United States
Insurer Receivership Acts
The US National Association of Insurance Commissioners (NAIC) Financial Regulation
Standards and Accreditation Program provides that a state should have a receivership
scheme as set forth in the NAIC Insurer Receivership Model Act (IRMA). Accordingly, every
state in the US has a receivership law that requires the appointment of the insurance
supervisor as the Receiver of an insurer in a rehabilitation or liquidation proceeding. Theselaws are consistent with IRMA or a predecessor model act, such as the Uniform Insurers
Liquidation Act or the Insurers Rehabilitation and Liquidation Model Act.
While rehabilitation and liquidation proceedings contain some distinct procedures, they both
encompass resolution powers listed in ICP 12. The Receiver is vested with the insurer’s
property and all rights to deal with the insurer’s business. The Receiver has all of the powersof the insurer’s directors and officers, whose authority is suspended except as allowed by the
Receiver. The Receiver may direct, hire and discharge employees, and appoint deputies orother personnel. The Receiver also has the power to:Recover property of the insurer transferred to an affiliate if the transfer was made withina specified period of time before the receivership petition;
Avoid unauthorized post receivership transfers;
Avoid preferences, which is defined to include certain transfers made for an antecedentdebt that enable a creditor to receive more than he would receive in liquidation; andAvoid a transfer of certain interests in the insurer’s property if the insurer received lessthan a reasonable value.

In a rehabilitation proceeding, the Receiver may take action to reform the insurer, includingtransferring policies to an assuming insurer. The Receiver may propose a rehabilitation plan,
which can include the imposition of liens on policies or a moratorium on loan and cash
surrender rights under policies. IRMA and established case law require that the plan must:Provide no less favourable treatment of a claim or class of claims than would occur inliquidation, with limited exceptions; andPublicApplication Paper on Resolution Powers and Planning
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

Be fair and equitable to all parties concerned.

The Receiver has the exclusive power to seek liquidation. If the insurer is in rehabilitation, theReceiver may seek a liquidation order if further attempts to rehabilitate the insurer would
substantially increase the risk of loss to creditors, policyholders or the public, or would be
futile. Policies are cancelled in liquidation, except for policies covered by a life and healthinsurance guaranty association, which is a PPS established in each state.
Receivership laws and court orders impose a broad stay of actions against the insurer or its
assets. The stay avoids the dissipation of assets, and the costs of defending actions in multiple
forums.
Insurance Holding Company System Model Regulation
The NAIC Insurance Holding Company System Model Regulation requires that cost sharing
and management agreements within a holding company system specify that if an insurer isplaced in receivership, an affiliate providing services: (i) has no automatic right to terminate
the agreement, and (ii) must continue to maintain systems, programs, or other infrastructure,and make them available to the Receiver for so long as timely payments for services are made.

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