Recovery and resolution. What will IRRD mean for Irish (re)insurers?

The much-anticipated Insurance Recovery and Resolution Directive (Directive - 2025/1) (IRRD) was published earlier this year.

It aims to harmonise and enhance recovery and resolution (R&R) tools relating to (re)insurers across the EU. Its primary goal is to ensure that (re)insurers and authorities are better prepared for significant financial distress. IRRD mirrors many features of R&R rules introduced for the banking sector in 2014 (the Bank Recovery and Resolution Directive, or BRRD).

Irish (re)insurers are likely to find themselves fairly well positioned on pre-emptive recovery planning expectations, due to the growing Irish (including the Central Bank of Ireland, or CBI) focus on recovery in recent years. The resolution landscape is different. Like many other jurisdictions, there has been little by way of resolution planning focus in Ireland. 

IRRD raises many interesting questions. The new powers for resolution authorities are significant and far-reaching, not just for (re)insurers themselves but also for groups, shareholder / investors, lenders and other contractual counterparties. Much is left to Member States to address, including required outcomes involving grey spaces which require careful thought and appropriate solutions.  

While IRRD itself reflects significant change, further detail is yet to come in the form of technical standards from the European Commission (on foot of input from European Insurance and Occupational Pensions Authority, or EIOPA). 

Key intel below to help (re)insurers, Boards, groups, and other stakeholders understand the landscape.

Recovery v resolution: a recap

Recovery

Recovery plans are designed for scenarios of deteriorating financial position.

For a number of years, most Irish (re)insurers have engaged in pre-emptive recovery planning.  Currently, they are required to prepare and update recovery plans periodically. Upon request, they must be submitted to the CBI for assessment.

Under IRRD, a number of enhanced rules and new obligations will come into play.

Resolution

Resolution plans address more serious situations where:

• a (re)insurer is failing (or likely to fail);
• there is no reasonable prospect of other available actions preventing failure in a reasonable time; and
• resolution is in the public interest.

This is also the case under IRRD.

R&R in Ireland

Recovery planning has featured in the CBI’s insurance sector mergers and acquisitions (M&A) and change in control (CIC) vetting activity, in recent years. 

In 2021, formal regulations (S.I. No. 184/2021) (the Recovery Regulations) on pre-emptive recovery planning for (re)insurers were introduced. This was based on powers granted to the CBI under Section 48 of the Central Bank (Supervision and Enforcement) Act 2013. CBI Guidance was released in April 2021 to assist with the preparation of those recovery plans (the CBI Guidelines). See our article on the Recovery Regulations / CBI Guidelines. The Recovery Regulations were prompted by a range of factors, including global financial crisis and emerging market and pandemic stresses. After conducting a thematic review of recovery plans in the (re)insurance sector, the CBI also issued a ‘Dear CEO Letter’ with recommendations in 2022.

On the resolution side, focus was initially on the banking sector (with the advent of BRRD). The CBI then turned its attention to the insurance sector, liaising with the Department of Finance on a resolution planning consultation in September 2021 (the Resolution Consultation). However, with the planned arrival of IRRD, the proposed framework set out in the Resolution Consultation was halted.

Currently, Ireland has an administration regime to deal with insurers in a stressed state (geared at trying to help insurers survive) but there is currently no Irish regime more closely equivalent to IRRD.

What's new for Irish (re)insurers?

Recovery planning

Ireland’s Recovery Regulations and CBI Guidelines address some issues now covered by IRRD. However, key new features in IRRD include:

• Mandatory periodic submissions - Currently, most Irish (re)insurers submit pre-emptive recovery plans to the CBI only if requested. The IRRD will require periodic submissions every 2 years or where there has been a relevant material change.
• Minimum market coverage – Under IRRD, relevant authorities must now ensure that at least 60% of each of the national life and non-life (re)insurance markets are subject to pre-emptive recovery planning requirements. This is calculated based on gross technical provisions (for the life market) and gross written premiums (for the non-life market).
• Group-level plans - IRRD introduces a group-wide planning requirement. 

Resolution planning

Core new features under IRRD include:

• Resolution authorities - Member States must designate an authority to intervene where (re)insurers are failing or likely to fail, either as a separate body or within a competent authority (in which case they must be independent and free from conflicts of interest).
• Minimum market coverage - Resolution authorities must create resolution plans for life and non-life (re)insurers representing at least 40% of the relevant national markets. Calculation bases are the same as for recovery planning (see above).
• Group-level planning - Establishment of ‘resolution colleges’ for cross-border coordination and decisions.
• Resolution toolkits - Resolution authorities will have very significant tools.  Most can be used in combination or separately. They include:
  • Solvent run-off - Servicing existing policies without writing new business;
  • Sale - Selling all or part of the business (e.g. transfer of shares, assets, rights or liabilities);
  • Bridge - Transferring shares or other ownership instruments to a ‘bridge undertaking’ (owned wholly or partially by a public authority) for temporary management of assets and liabilities;
• Asset & liability separation - Transferring assets and liabilities to management vehicles controlled by public authorities; and
• Write-down & conversion - Reducing the principal amount of capital instruments, debt instruments or other eligible liabilities / converting outstanding debts into equity.
• Resolution funding - Financing arrangements to ensure that resolution authorities have adequate funds through prospective or retrospective contributions (or both).

Irish implementation

Many interesting questions are yet to be bottomed out as part of the Irish implementation of IRRD. Key examples include:

• Under IRRD, resolution authorities will be responsible for preparing resolution plans (and if necessary, taking resolution action). In Ireland, it is not yet confirmed how the resolution authority will be structured.  However, the Department of Finance’s consultation paper from July 2025 (the IRRD Consultation Paper) suggests that such powers will be given to the CBI.
• IRRD indicates that resolution ‘toolkits will not come into play until there is no reasonable prospect that any alternative measures would prevent failure within a reasonable timeframe. This suggests that IRRD will not displace the administration process under the Insurance (No 2) Act 1983.  Where will the line be drawn between rescue measures and the use of resolution?
• Resolution activities will create material administrative and financial burdens. How will Ireland approach funding / contributions? The IRRD Consultation Paper suggested a prospective approach with a target of €150m over the course of 8 years (€18m annually). 
• The existing Insurance Compensation Fund (ICF) applies to the non-life sector and is funded by way of levies. It is unclear whether the ICF could be used to provide finance for resolution or whether IRRD will result in additional levies on the sector.  

Other interesting complexions…

Small & non-complex undertakings will not be subject to R&R measures at all (except where they pose a particular risk at national or regional level).

Fully fledged v simplified requirements: Relevant authorities can decide to apply different / reduced R&R obligations to particular undertakings and groups. EIOPA is due to set out further details on the criteria for simplified obligations later this year.

Content & protocol: IRRD sets out some details on the content required for R&R plans, which is worth a read for gap assessment purposes.   Existing tools may be considered such as contingency and liquidity risk management plans.  IRRD also provides information on how it will be determined if resolution is necessary.

Burden & cost: IRRD itself helpfully highlights the need to (a) avoid unnecessary administrative burdens and costs for undertakings (as well as authorities) and (b) for proportionality of approach.  This is particularly important given the heavy lift envisaged for resolution activities. 

Governance: IRRD emphasises that R&R planning should be an integral part of a (re)insurer’s governance.

Resolution powers are wide-ranging. Key examples include:

• ‘removal of impediments’ powers (including requiring revision of intra-group financing arrangements)
• transfer of reinsurance rights without the consent of the reinsurance undertaking
• ability to cancel or modify terms of contracts (including substitution of a party)
• appointment of a ‘special manager’ (with all the powers of a shareholder and a board)
• requiring that group entities continue to provide operational services or facilities
• cancellation of debt instruments (exceptions including secured liabilities and employee commitments)
• restructuring insurance claims and reducing debt / liabilities (including claims) to zero
• applying a moratorium on (a) payment of claims and (b) redemption or surrender rights
• there are notable protections for structured finance and other types of ring-fenced arrangements

Mandatory notifications to supervisors if recovery actions are decided.

Net effect directions: IRRD directs Member States to achieve significant net effects, which will require careful consideration domestically.  These include ensuring that:

• resolution authorities can exercise certain powers without complying with company law or securities law; 
• no impediments exist to write down or conversion mechanics (including via pre-emption rights for shareholders or the need for shareholder consents to increases in capital);
• there is no entitlement to prevent, challenge, set aside steps taken regarding certain resolution actions; and 
• mutual recognition for resolution measures by other Member States is in place.

Qualifying holding angles: Derogation from CIC rules (and obligations for supervisors to act in a timely manner that does not delay / compromise achievement of the resolution objective).

Considerable cooperation & communication between authorities including for host supervisory authorities to make recommendations on recovery plans and an active role for the Solvency II group supervisor. A welcome inclusion is that (hand in hand with information seeking abilities) authorities should seek information from each other before requesting information from (re)insurers. EIOPA is developing a set of standard forms and templates for provision of information.

What next?

Member States must adopt national implementing rules by 29 January 2027 (to apply from the following day, 30 January 2027).

The European Commission (following input from EIOPA) will provide technical standards on the implementation of the IRRD.  EIOPA has already published two batches of consultation papers since April 2025, including on:

• Content and effect of recovery and resolution plans
• Identification of critical functions (which are a priority focus in resolution protocol)
• Assessment of resolvability (of (re)insurers)
• Functioning of resolution colleges

Meanwhile, the Department of Finance’s IRRD Consultation Paper is open for feedback until 5 September 2025.

Like BRRD, IRRD is a minimum harmonisation directive. This could lead to an unequal playing field across the EU (the opposite of IRRD’s stated intention), due to gold-plating. Member States which gold-plate the IRRD could find themselves at a competitive disadvantage. IRRD itself speaks of the harmonisation and coordination that it wishes to achieve, and the dangers of absence of commonality.

IRRD also provides that minimum common EU standards for Insurance Guarantee Schemes will be examined shortly.

Final thoughts

IRRD will not go live until January 2027, so there is some time to prepare. However, implementing legislation could be published close to the IRRD go-live date and R&R planning may require consideration and input from various teams across businesses and groups. 

There will be advantages to:

• Socialising IRRD early (with Boards, key function holders and groups).
• Conducting gap analysis and planning as matters evolve.   
• Staying abreast of continuing developments; while most insurance boards and groups will be familiar with recovery planning, they may be less familiar with resolution (EIOPA has issued useful guidance).
• Keeping a watch out for EIOPA’s consultation papers (and ultimately the technical standards which they will feed into).

IRRD leaves quite a lot of work to be done at national level (with technical standards and guidance yet to come). Given the nature and breadth of changes required, transposition may involve a deeper and broader legislative change than is usual for implementing EU Directives. 

Watch this space.

For advice or for further information on this topic, please contact Sinéad Lynch, Partner, Catherine Moloney, Solicitor, or any other member of ALG’s Insurance & Reinsurance team.

Date published: 19 August 2025