Resolution funding
On 22 September 2021, the Commission published a proposal for an Insurance Recovery and
Resolution Directive (IRRD), which does not directly tackle funding issues. One of the key questions
of the proposed resolution framework relates to its funding, as no specific requirement is currently
included in the proposal. Indeed, resolution of a failed undertaking entails costs that can be substantial.
Those costs can relate to operational costs (e.g. human and administrative expenses of the resolution
authority), to the use of resolution powers and to compensate the potential breach of the no creditor
worse off than in liquidation principle (NCWO). Member states (MS) should therefore have in place
credible funding arrangements that would internalize the cost of resolution actions in order to avoid
on the one hand the use of public external funding and on the other hand an adverse impact on
policyholders, both elements being resolution objectives laid down within the IRRD proposal (Article
18).
Several Member States have mentioned the issue of resolution funding during previous working
parties, thereby highlighting the necessity to enhance the Commission’s proposal. As to the way
forward, Member States expressed divergent views. Some key elements we have distilled from the
discussion are the following:
x

Internal funding requirements would create a competitive disadvantage for the European
Union and it should be noted that such requirements have not been recommended by EIOPA
in its Opinion as potential sources to finance the resolution.

x

Resolution funding is however a key aspect of the resolution framework and is of the utmost
importance
for
a
comprehensive
framework
protecting
policyholders.

x

External funding requirements should respect the spirit of the Commission’s proposal.
Consequently, amendments should (i) on the one hand be aligned with the minimum
harmonization principle that would leave to national discretion specific features related to
funding (in particular the possibility to rely exclusively on ex-post contributions) and; (ii) on
the other hand foster European convergence and level playing field, thereby reaching the right
level of a privately funded amount ensuring that there would be no misuse of public funds and
no undue home-host arbitrage within the European Union.

x

External funding arrangements cover mainly two avenues: resolution fund and insurance
guarantee schemes (IGS) interventions. The IRRD should not anticipate discussions about IGS
harmonization as it may be subject of a possible future legislative proposal by the Commission
and Member States have not had an opportunity to finalize their positions on IGS. Regarding
resolution funding, a possible solution would be to insert minimum obligations in the
directive as regards national financing arrangements.

A balanced proposition could be to include in the text the obligation to establish national financing
arrangements. To achieve the objective of reinforced policyholder protection across MS without gaps
deriving from the combined application of home and host principles, a minimum harmonization of its
features could be included.
The financing arrangements would as a minimum:

(i) be entitled to pay compensation to shareholders, creditors or policyholders in
accordance with Article 55 in the event of a NCWO breach ;
(ii) be subject to the home-country principle, which entails that the home resolution fund
would be responsible for compensating shareholders, creditors or policyholders in
host MS where the undertaking operates under free provision of services or right of
establishment.
Those additional provisions would not require to detail all features of the financing arrangements in
the directive, which can be left to the discretion of the MS. In particular, no target for the financing of
the fund should be defined, and the option to recourse exclusively to ex-post funding could also be
foreseen.

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