An orderly process for an insurer’s withdrawal from the business of insurance helps to protect policyholders, and contributes to the stability of the insurance market and the financial system. Jurisdictions should have transparent and effective regimes for an insurer’s exit from the market and the resolution of an insurer.

In this ICP, “resolution” refers to an action 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. Resolution actions include portfolio transfer, run-off, restructuring, and liquidation.

• “supervisor” is used when the standard and/or guidance involves responsibilities and/or roles of the day-to-day supervisor of the insurer;
• “resolution authority” is used when the standard and/or guidance involves resolution powers and/or processes after resolution has been instituted: this includes supervisors acting under their resolution powers; and
• “supervisor and/or resolution authority” is used when the standard and/or guidance involves responsibilities for planning and/or initiation of resolution and encompasses supervisors acting in their pre-resolution roles (eg before a supervisor or resolution authority institutes resolution and/or obtains any necessary administrative and/or judicial approvals to do so).

The structure and roles of resolution authorities vary across jurisdictions. In some jurisdictions, the resolution authority and the supervisor may be one single authority; in other jurisdictions, resolution of insurers may be the responsibility of one or more separate authorities. In some jurisdictions certain resolution powers may be exercised or overseen by the court. Whatever the allocation of responsibilities, a transparent and effective resolution regime should clearly delineate the responsibilities and powers of each authority involved in the resolution of insurers (see ICP 1 Objectives, powers and responsibilities of the supervisor). Where there are multiple authorities responsible for the resolution of insurers, the resolution regime should empower the relevant authorities to cooperate and coordinate with each other.

Exit from the market refers to cessation of the insurer’s business, in part or in whole. Insurers that meet regulatory requirements may decide to exit from the market on a voluntary basis for business and/or strategic reasons. This is often referred to as ‘voluntary exit from the market’.

Insurers may also be required by the supervisor to exit from the market. For example, supervisory measures and/or sanctions may result in an insurer exiting from the market (ie involuntary exit from the market) (see ICP 10 Preventive Measures, Corrective Measures and Sanctions).

Jurisdictions may need to have mechanisms in place to determine whether the continuity of insurance cover is necessary when insurers exit from the market. Any such continuity should preferably be on the same contract terms, but when necessary, on amended terms. Such mechanisms need to be proportionate to the unique nature and structure of the insurance market in each jurisdiction. Continuity of insurance cover may be facilitated by transferring insurance portfolios to a succeeding insurer, including a bridge institution. Continuity of some insurance contracts, particularly for some non-life products, may be necessary for only a short period (for example 30 or 60 days) so that the policyholder has sufficient time to find another insurer. Facilitating continuity of insurance cover might not be necessary for certain types of insurance products, such as those that are offered by many insurers in a market and which are highly substitutable.

Where an insurer exits from the market and there is no succeeding insurer or no similar insurance products available in the market, mechanisms that facilitate the availability of alternate cover may need to be explored by the supervisor, such as when the exiting insurer delivers insurance contracts that cover risks that may be important to a particular jurisdiction’s economy and/or are compulsory insurance in legislation.

A resolution regime should make it possible for any losses to be absorbed by: i) shareholders; ii) general creditors; and iii) policyholders, in a manner that respects the jurisdiction’s liquidation claims hierarchy. Policyholders should absorb losses only after all lower ranking creditors have absorbed losses to the full extent of their claims. Mechanisms, such as policyholder protection schemes (PPSs), may mitigate the need for the absorption of losses by policyholders.

Depending on the circumstances, appropriate resolution measures may be applied to one or more separate entities in an insurance group, such as: i) the head of the insurance group; ii) an intermediate holding company below the head of the insurance group; iii) an insurance legal entity within the group; iv) a branch of an insurance legal entity within the group; or v) other regulated (eg banks) or non-regulated entities within the group. For other regulated entities within the group (eg banks), a resolution regime relevant to their sector may apply.

Some insurers operate on a cross-border basis through subsidiaries or branches in another jurisdiction, or through providing insurance services on a cross-border basis without setting up a physical presence outside their home jurisdiction. Also, where an insurance legal entity is a member of a group, there could be intra-group transactions and guarantees among insurance legal entities and/or other group entities in different jurisdictions. 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.

The supervisor should require the insurer which voluntarily exits from the market to make appropriate arrangements for the voluntary exit (eg, run-off or portfolio transfer), including ensuring adequate human and financial resources to fulfil all its insurance obligations.

Voluntary exit from the market is initiated by the insurer.

• expected timeframe;
• projected financial statements;
• human and material resources that will be available;
• governance and risk management of the process;
• communication with policyholders about the insurer’s exit from the market; and
• communication to the public.

Insurers that exit from the market on a voluntary basis should continue to be subject to supervision until all insurance obligations are either discharged or transferred to succeeding insurers. Legislation should provide for appropriate requirements for these exiting insurers.

The legislation should support the objective of protecting policyholders. This however does not mean that policyholders will be fully protected under all circumstances and does not exclude the possibility that losses be absorbed by policyholders, to the extent they are not covered by PPSs or other mechanisms. A jurisdiction may have additional resolution objectives in the legislation, such as contributing to financial stability.

The legislation should provide a scheme for prioritising the payment of claims of policyholders and other creditors in liquidation (liquidation claims hierarchy). Resolution powers should be exercised in a way that respects the hierarchy of creditors’ claims in liquidation. In a resolution action other than a liquidation, creditors should be entitled to compensation 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 much as they would have received in a liquidation.

Resolution should seek to minimise reliance on public funding. In principle, any public funding used for the resolution of the insurer should be recouped from the insurance sector in a transparent manner. The phrase “reliance on public funding” does not refer to the use of funds from policyholder protection schemes to support the implementation of resolution actions.

Resolution processes and procedures are aimed at supporting the resolution preparedness in a jurisdiction, including the supervisor and/or resolution authority, insurers and other relevant stakeholders. These processes and procedures should entail the establishment of strategies and actions for effectively resolving an insurer if it becomes necessary while minimising the impact on policyholders, financial stability, the real economy and taxpayers. Such actions include being able to put in place a resolution plan for an insurer (see Standard 12.4), and may also entail preparing to resolve certain types of insurers that have common characteristics or offer similar services. The supervisor and/or resolution authority should involve the insurer as appropriate. Where applicable, these processes and procedures may also address coordination with the authorities responsible for the non-insurer legal entities within an insurance group.

The supervisor should require the insurer to consider such risks and where appropriate, prepare contingency plans to mitigate the risk.

The supervisor should require that the insurer have procedures in place to provide necessary information (eg policyholders’ names, types of their contracts, and the value of each contract) to a relevant organisation (such as a PPS) in a timely manner when the insurer enters into resolution.

Resolution processes and procedures are aimed at supporting the resolution preparedness in a jurisdiction, including the supervisor and/or resolution authority, insurers and other relevant stakeholders. These processes and procedures should entail the establishment of strategies and actions for effectively resolving an insurer if it becomes necessary while minimising the impact on policyholders, financial stability, the real economy and taxpayers. Such actions include being able to put in place a resolution plan for an insurer (see Standard 12.4), and may also entail preparing to resolve certain types of insurers that have common characteristics or offer similar services. The supervisor and/or resolution authority should involve the insurer as appropriate. Where applicable, these processes and procedures may also address coordination with the authorities responsible for the non-insurer legal entities within an insurance group.

Resolution processes and procedures aim to identify and prepare options in advance for resolving all or part(s) of an insurer, or certain types of insurers, to maximise the likelihood of an orderly resolution if resolution becomes necessary. The options considered may vary based on the insurer’s activities, nature, scale and complexity, the resolution scenario and the resolution powers available to the supervisor and/or resolution authority (see Standard 12.8).

Risks may be identified, specific to an insurer’s circumstances, that could arise in resolution and could impact achieving the jurisdiction’s resolution objectives. For example, such risks may relate to the insurer’s provision of relevant information to the supervisor or resolution authority, the continuity of certain business operations, and/or the orderly implementation of a jurisdiction’s PPS. When such risks are identified, the supervisor and/or resolution authority should require the insurer to consider such risks, and where appropriate, take steps to mitigate the risks.

Insurers should have processes and procedures in place to be able to provide necessary information (eg policyholders’ names, types of their contracts and the value of each contract) to the supervisor and/or resolution authority, as well as any other relevant organisation (such as a PPS) in a timely manner when the insurer enters into resolution.

Insurers should evaluate prospectively their specific operations and risks in possible resolution scenarios and have processes and procedures available for use during a resolution.

The group-wide supervisor and/or resolution authority conducts assessments of each IAIG within its jurisdiction to determine whether a resolution plan is needed, in consultation with the crisis management group of the IAIG (IAIG CMG).

Factors to be considered in developing the criteria for assessing whether a resolution plan is needed are set out in Standard 12.4.

Resolution plans should be reviewed on a regular basis, or when there are material changes to the IAIG’s business or structure or any other change that could have a material impact on the resolution plan, and be updated when necessary. These plans should also be subject to regular reviews within the IAIG CMG.

Where a resolution plan is required, the group-wide supervisor and/or resolution authority, in coordination with the IAIG CMG:

• ensures that the plan covers at least the group’s material entities;
• requires relevant legal entities within the IAIG to submit necessary information for the development of the resolution plan;
• regularly undertakes resolvability assessments to evaluate the feasibility and credibility of resolution strategies, in light of the possible impact of the IAIG’s failure on policyholders, financial stability and/or the real economy in the jurisdictions in which the IAIG operates; and
• requires the IAIG to take adequate actions to improve its resolvability, where impediments to resolution are identified in a resolvability assessment.

Resolvability assessments should also be subject to regular reviews within the IAIG CMG.

When developing the criteria to decide which insurers will be subject to a resolution plan requirement, the supervisor and/or resolution authority should consider factors such as:
the insurer’s size, activities and its lines of business;

• the insurer’s risk profile and risk management mechanisms;
• the level of substitutability of the insurer’s activities or business lines;
• the complexity of the insurer’s structure, including the number of jurisdictions in which it operates;
• the insurer’s interconnectedness; and/or
• the impact of the insurer’s failure.

The supervisor and/or resolution authority may also decide to require resolution plans for a minimum market share of its insurance sector.

The supervisor and/or resolution authority should also consider the factors above when deciding on the necessary level of detail of the resolution plan, when a plan is required.

The assessment of an insurer’s potential systemic importance should be in line with ICP 24 (Macroprudential supervision).

Insurers are considered critical if their failure is likely to have a significant impact on the financial system and/or the real economy of the jurisdiction, including by;

• materially affecting a large number of policyholders in the case that the insurer’s activities, services or operations are significantly relied upon and cannot be substituted with reasonable time and cost; or
• causing a systemic disruption or a loss of general confidence in the insurance sector.

The resolution plan should identify:

• financial and economic functions that need to be continued to achieve the resolution objectives for the insurer;
• suitable resolution options to preserve such functions or discontinue them in an orderly manner;
• data requirements for the insurer’s business operations, structures and financial and economic functions;
• potential barriers to effective resolution and actions to mitigate those barriers; and
• actions to protect policyholders.

For the purpose of the resolution plan, the supervisor and/or resolution authority should:

• require the insurer to submit necessary information for the development of the resolution plan; and
• where necessary, require the insurer to take adequate actions to improve its resolvability.

Resolvability assessments should consider if it is feasible and credible for the supervisor and/or resolution authority to resolve the insurer in a way that protects policyholders and contributes to financial stability while minimising reliance on public funds.

Resolvability assessments should be undertaken on a regular basis, or when there are material changes to the insurer’s business or structure, or any other change that could have a material impact on the resolvability assessment.

When the resolution plan and/or resolvability assessment identifies potential barriers to effective resolution, the insurer should be given the opportunity to propose its own prospective actions to improve its resolvability by mitigating these barriers, before it is required to do so by the supervisor and/or resolution authority.

In the case of a group, the group-wide supervisor and/or resolution authority should lead the development of the group-wide resolution plan, in coordination with other involved supervisors and/or resolution authorities and should involve the group as appropriate. Coordination may be done through a supervisory college or CMG if any is in place. The plan should cover at least the group’s material entities.

Other involved supervisors and/or resolution authorities may deem it appropriate to have their own resolution plan for the group’s insurance legal entity in their jurisdictions when, for instance:

• the insurance legal entity’s presence in the jurisdiction is large in scope and/or scale;
• the insurance legal entity provides critical and/or non-substitutable insurance coverages; and/or
• its resolution may impact that jurisdiction’s policyholders, financial stability and/or real economy.

If a host jurisdiction decides to establish a resolution plan, it should cooperate with the group-wide supervisor and/or resolution authority to ensure that the host jurisdiction’s plan is as consistent as possible with the group-wide resolution plan.

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 group, as set out in the resolution plan.

• the insurance legal entity is in breach of the minimum capital requirement (MCR) and there is no reasonable prospect of restoring compliance with MCR;
• the consolidated own funds of the insurance group are lower than the sum of the proportional shares of the MCRs, or minimum capital requirements of the regulated legal entities belonging to the insurance group (eg due to double-gearing);
• the insurer is in breach of other material prudential requirements (such as a requirement on assets backing technical provisions) and there is no reasonable prospect of compliance being restored;
• there is a strong likelihood that policyholders and/or other creditors will not receive payments as they fall due;
• intra-group transactions impede or are likely to impede the ability of the insurer to meet policyholder and/or creditor obligations as they fall due; or
• measures attempting the recovery of the insurer have failed, or there is a strong likelihood that such proposed measures will: i) not be sufficient to return the insurer to viability; or ii) cannot be implemented in a reasonable timeframe.

Powers to resolve insurers should be exercised in a proportionate manner that resolves the insurer most effectively in light of the circumstances and objectives of resolution. Some powers may not be needed for all insurers but only for insurers that are, for example, of systemic importance in the jurisdiction. Some powers may only affect the insurer, while others may impact contractual rights of third parties (such as a suspension of policyholders’ rights or restructuring of policies).

Some resolution powers are exercised with the aim to stabilise or restructure an insurer and avoid liquidation. Liquidation can be used in conjunction with other resolution powers. Creditors should have a right to compensation where they do not receive at a minimum what they would have received in a liquidation of the insurer under the applicable insolvency regime (NCWOL principle).

If a court order is required for the resolution authority to exercise resolution powers, the time required for court proceedings should be taken into consideration for the effective implementation of resolution actions.

• prohibit the payment of dividends to shareholders;
• 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 claw-back of variable remuneration;
• prohibit the transfer of the insurer’s assets without supervisory approval;
• retain, remove or replace the Board, Senior Management and Key Persons in Control Functions;
• take control of and manage the insurer, or appoint an administrator or manager to do so;
• withdraw the license to write new business and put all or part of the insurance business contracts into run-off;
• sell or transfer the shares of the insurer to a third party;
• ​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;
• override rights of shareholders of the insurer in resolution, including requirements for approval by shareholders of particular transactions, in order to permit a merger, acquisition, sale of substantial business operations, recapitalisation or other measures to restructure and dispose of the insurer’s business or its liabilities and assets;
• terminate, continue or transfer certain types of contracts, including insurance contracts;
• transfer or sell the whole or part of the assets and liabilities of the insurer to a solvent insurer or third party;
• transfer any reinsurance associated with transferred insurance policies without the consent of the reinsurer;
• temporarily restrict or suspend the policyholders’ rights of withdrawing their insurance 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;
• 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; and
• initiate the liquidation of the whole or part of the insurer.

The choice and application of the powers set out above should take into account whether an insurer’s disorderly failure would potentially cause significant disruption to the financial system and real economy, the types of business the insurer is engaged in, and the nature of its assets and liabilities.

Where the resolution authority takes action which leads to another person taking control of an insurer with a view to restoring, restructuring or running off the business, the resolution authority should continue to be responsible for the orderly resolution of the insurer. In particular, the resolution authority should continue to exercise functions which ensure that the objectives of resolution are met, notwithstanding any additional responsibilities which the person appointed may have to the insurer or to the courts.

Resolution powers should be exercised in a manner that does not discriminate between creditors on the basis of their nationality, the location of their claim, or the jurisdiction where it is payable.

Mechanisms should be in place to (i) enable continuity of cover for policyholders where this is needed and (ii) ensure timely payment of claims to policyholders of the insurer in resolution, with the aim to minimise disruption to the timely provision of benefits to policyholders. A PPS can be one of the mechanisms that can help ensure timely payments to policyholders and minimise disruption.

When requiring contracts to be transferred to another insurer, the resolution authority should satisfy itself that the interests of the policyholders of the transferor and of the transferee are safeguarded. In some cases this may be achieved through varying, reducing or restructuring the transferred liabilities.

  Portfolio transfers and transfers of other types of contracts of the insurer in resolution should not require the consent of each policyholder or party to the contract.

Consistent with the liquidation claims hierarchy, insurance liabilities should be written down only after equity and all liabilities that rank lower than insurance liabilities have absorbed losses, and only if the resolution authority is satisfied that policyholders are no worse off than in liquidation after compensation, where necessary.

Information on the period during which policyholders are prohibited from withdrawing from their insurance contracts should be available to policyholders in a transparent manner for the purposes of policyholder protection.

The exercise of stay powers, their scope of application and the duration of the stays should be designed to address the specific situation of the insurer in resolution. For example, the duration of the stay could depend on the type of the insurance or financial contract.

There may be circumstances where resolution powers will need to be exercised at the level of the head of the insurance group and/or non-regulated entities. Resolution authorities should have the capacity to exercise resolution powers directly on such entities within their jurisdiction to the extent necessary and appropriate. Where resolution powers need to be exercised on entities outside of their jurisdiction or legal authority, the resolution authority should cooperate and coordinate with relevant supervisors and resolution authorities in the relevant jurisdictions, to the extent necessary and appropriate.

Unless otherwise specified by the resolution authority, resolution powers exercised on an insurance legal entity (for instance to cease writing business) should also apply to the legal entity’s branches. However, the resolution authority responsible for a branch can also exercise powers toward the branch. In either case, the resolution authorities responsible for the branch and the insurance legal entity should consult and cooperate with one another.

The resolution authority may choose which power, or which combination of powers, is applied to which entity within the group. Different types of powers may be applied to different parts of the entity’s business.

The range of available resolution powers in a jurisdiction should allow the effective and orderly resolution of insurers, in particular to protect policyholders and contribute to financial stability. Some powers may not be needed for all insurers but only, for example, for insurers that are of systemic importance or critical in failure in the jurisdiction. In jurisdictions with more developed insurance markets and/or that include large, complex or systemically important insurers, it is particularly important for legislation to provide a sufficiently wide range of resolution powers to allow the supervisor and/or resolution authority to resolve an insurer effectively.

The choice and application of the powers set out below should take into account whether an insurer’s disorderly failure would potentially cause significant disruption to policyholders, the financial system and/or real economy, the types of business the insurer is engaged in, and the nature of its assets and liabilities.

Resolution powers should be exercised in a proportionate manner that resolves the insurer most effectively in light of the circumstances and objectives of resolution. Some powers may only affect the insurer, while others may impact contractual rights of third parties (such as a suspension of policyholders’ rights or restructuring of policies).

Some resolution powers are exercised with the aim to stabilise or restructure an insurer and avoid liquidation, while other resolution powers can be used in conjunction with liquidation. Creditors should have a right to compensation where they do not receive at a minimum what they would have received in a liquidation of the insurer under the applicable insolvency regime (NCWOL principle).

If a court order is required for the resolution authority to exercise resolution powers, the time required for court proceedings should be taken into consideration for the effective implementation of resolution actions.

Resolution powers should include the following. This list is not exhaustive and the resolution authority should have discretion to apply other available powers. The order of presentation of the powers is not an indication of the sequence in which these powers could be exercised or of their importance. While each power is only listed once, some can support more than one objective:

Taking control

• take control of and manage the insurer, or appoint an administrator or manager to do so;
• remove or replace Members of the Boards, Senior Management and/or Key Persons in Control Functions;
• prohibit the payment of dividends to shareholders;
• prohibit the payment of variable remuneration to, and allow the recovery of monies from, Members of the Boards, Senior Management, Key Persons in Control Functions and major risk taking staff, including claw-back of variable remuneration; and
• prohibit the transfer of the insurer’s assets without supervisory approval.

Withdrawal of licence

• withdraw the licence to write new business and put all or part of the insurance contracts into run-off.

Override rights of shareholders

• override requirements for approval by shareholders of particular transactions or to permit a merger, acquisition, sale of substantial business operations, recapitalisation, or other measures to restructure and dispose of the insurer’s business or its liabilities and assets; and
• sell or transfer the shares of the insurer to a third party.

Restructuring mechanisms

• restructure, limit or write down liabilities (including insurance liabilities), and allocate losses to creditors, shareholders and policyholders, where applicable and in a manner consistent with the liquidation claims hierarchy and jurisdiction’s legal framework.

Suspension of rights

• temporarily restrict or suspend the policyholders’ rights of withdrawing their insurance 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;
• 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; and
• temporarily stay early termination rights associated with derivatives and securities financing transactions.

Transfer or sell assets or liabilities

• transfer or sell the whole or part of the rights, assets and liabilities of the insurer to a solvent third party, and to take steps to facilitate transfer, run-off and/or liquidation
• terminate, continue or transfer certain types of contracts, including insurance contracts; and
• transfer any reinsurance associated with transferred insurance policies without the consent of the reinsurer.

Bridge institution

• establish a bridge institution.

Essential services and functions

• take steps to provide continuity of essential services and functions.

Liquidation

• initiate the liquidation of the whole or part of the insurer.

Where the resolution authority takes action which leads to another person taking control of an insurer with a view to restoring, restructuring or running off the business, the resolution authority should continue to be responsible for the orderly resolution of the insurer. In particular, the resolution authority should continue to exercise functions which ensure that the objectives of resolution are met, notwithstanding any additional responsibilities which the person appointed may have to the insurer or to the courts.

Resolution powers should be exercised in a manner that does not discriminate between creditors on the basis of their nationality, the location of their claim, or the jurisdiction where it is payable.

Mechanisms should be in place to (i) enable continuity of cover for policyholders where this is needed and (ii) ensure timely payment of claims to policyholders of the insurer in resolution, with the aim to minimise disruption to the timely provision of benefits to policyholders. A PPS can be one of the mechanisms that can help ensure timely payments to policyholders and minimise disruption.

When requiring contracts to be transferred to another insurer, the resolution authority should satisfy itself that the interests of the policyholders of the transferor and of the transferee are safeguarded. In some cases this may be achieved through varying, reducing or restructuring the transferred liabilities.

Portfolio transfers and transfers of other types of contracts of the insurer in resolution should not require the consent of each policyholder or party to the contract.

Consistent with the liquidation claims hierarchy, insurance liabilities should be written down only after equity and all liabilities that rank lower than insurance liabilities have absorbed losses, and only if the resolution authority is satisfied that policyholders are no worse off than in liquidation after compensation, where necessary

Information on the period during which policyholders are prohibited from withdrawing from their insurance contracts should be available to policyholders in a transparent manner for the purposes of policyholder protection.

The exercise of stay powers, their scope of application and the duration of the stays should be designed to address the specific situation of the insurer in resolution. For example, the duration of the stay could depend on the type of the insurance or financial contract.

There may be circumstances where resolution powers will need to be exercised at the level of the head of the insurance group and/or non-regulated entities. Resolution authorities should have the capacity to exercise resolution powers directly on such entities within their jurisdiction to the extent necessary and appropriate. Where resolution powers need to be exercised on entities outside of their jurisdiction or legal authority, the resolution authority should cooperate and coordinate with relevant supervisors and resolution authorities in the relevant jurisdictions, to the extent necessary and appropriate.

There may be circumstances where resolution powers will need to be exercised at the level of the head of the insurance group and/or non-regulated entities. Resolution authorities should have the capacity to exercise resolution powers directly on such entities within their jurisdiction to the extent necessary and appropriate. Where resolution powers need to be exercised on entities outside of their jurisdiction or legal authority, the resolution authority should cooperate and coordinate with relevant supervisors and resolution authorities in the relevant jurisdictions, to the extent necessary and appropriate.

The resolution authority may choose which power, or which combination of powers, is applied to which entity within the group. Different types of powers may be applied to different parts of the entity’s business.

The supervisor and/or resolution authority has the power to take steps to provide continuity of essential services and functions, including to:

• require other legal entities within the IAIG (including non-regulated entities) to continue to provide these essential services to the entity in resolution, any successor, or an acquiring entity;
• ensure that the residual entity in resolution can temporarily provide such services to a successor or an acquiring entity; and
• procure necessary services from unaffiliated third parties.

Essential services include, in particular, information technology (IT) systems.

Any transfer of rights, assets or liabilities should not require the consent of any interested party or creditor to be valid, except that of the transferee.

Any transfer of rights, assets or liabilities should not constitute a default or termination event in relation to the transferred elements.

In some jurisdictions, PPSs can be utilised as a bridge institution to which insurance contracts of the IAIG are transferred.

The supervisor and/or resolution authority has the power to establish a bridge institution.

The supervisor and/or resolution authority has the power to initiate the liquidation of the whole or part of the IAIG.

Like the other resolution powers, this power may be used in conjunction with, or after the use of other resolution powers. For example, it may be that only a part of the insurance group is put into liquidation, whereas other parts of the group may be transferred or sold to other entities.

The power to put the insurer into liquidation may be exercised in a variety of ways, such as (i) all or part of the insurance contracts are put into run-off; or (ii) the resolution authority passes on the authority to resolve the insurer to a judicial body or court of law (judicial liquidation). In some jurisdictions with judicial liquidation, the resolution authority is appointed to act on behalf of the court.

Legislation should define the involvement of the supervisor in a liquidation, which promotes the protection of policyholders. The supervisor should be authorised to initiate, or should be involved in the liquidation of an insurance legal entity, or a branch of a foreign insurer in its jurisdiction.

In many jurisdictions, all resolution actions, including liquidation, may only be initiated by the supervisor and/or resolution authority. However, in some jurisdictions, the liquidation process can be initiated by another person (such as a creditor of the insurance legal entity, the insurance legal entity itself, or the court). If legislation permits another person to initiate liquidation, it should: i) require prior approval of the supervisor, or ii) at a minimum, require prior coordination with the supervisor. If legislation permits another person to initiate liquidation without such prior approval or coordination, it should provide that the supervisor may challenge the person’s action.

While respecting the liquidation claims hierarchy, the resolution authority could treat certain types of creditors differently from others in the same class of creditors’ hierarchy. In such cases, the reasons for such a treatment should be transparent and clearly explained. Concerned creditors should be protected by the NCWOL principle and where they do not receive at a minimum what they would have received in a liquidation of the entity they should have a right to compensation.

For instance, different types of creditors could be:

·      two categories of policyholders ranking pari passu where one is covered by a PPS while the other is not; or

·      two categories of creditors ranking pari passu but the creditors are different in nature (eg direct policyholders versus cedants).

• settling contracts ranking pari passu at a different pace; or
• reducing (writing down) contracts ranking pari passu at a different rate.

In some jurisdictions, insurance liabilities may be restructured. Restructuring, limiting or writing down insurance liabilities may include:

• suspending or postponing payments to policyholders;
• amending terms of insurance contracts;
• terminating or restructuring options provided to policyholders;
• reducing the value of current and future benefits;
• early settling of contracts by payment of a proportion of the insurance liabilities to provide a more rapid and cost-effective resolution. This can apply to future determined benefits but also, and in particular in the case of inward (accepted) reinsurance, to future contingent claims; or
• restructuring reinsurance contracts to allow losses to be imposed on cedants as appropriate.

In most cases, approval from the court is required for the restructuring, while in some jurisdictions the resolution authority is empowered to restructure all or part of insurance liabilities without court approval. Restructuring should only occur if it adheres to the NCWOL principle.

Where insurance liabilities may be subject to restructuring in resolution, the resolution authority should clearly communicate information (for example, the processes through which such restructuring is undertaken and the extent that policyholders may be forced to absorb losses) to interested stakeholders.

When an insurance legal entity is resolved, the resolution of, or the application of some resolution powers to, the head of the group may support or aid the orderly resolution of the insurance legal entity and best ensure the protection of policyholders.

The resolution authority responsible for a branch should have the ability to support a resolution carried out by the resolution authority of the insurance legal entity which owns the branch or by the resolution authority responsible for the resolution of the insurance group to which the branch belongs.

The resolution process may differ in the jurisdiction of the branch and in that of the insurance legal entity, due, among other things, to different insolvency laws and creditor hierarchies.

Where the resolution authority of the insurance legal entity which owns the branch or the resolution authority responsible for the resolution of the insurance group to which the branch belongs are not taking action, or are acting in a manner that does not take sufficient account of the objectives of resolution in the branch jurisdiction, the resolution authority responsible for the branch may need to take actions of its own initiative.

Where the resolution authority for a branch takes resolution action of its own initiative, it should give prior notification and consult the supervisor or resolution authority of the insurance legal entity which owns the branch and/or the supervisor or resolution authority of the insurance.