UK: Insurers And Other Firms To Face Enhanced Resolution Requirements

Last Updated: 15 August 2013
Article by Deloitte Financial Services Group

Most Read Contributor in UK, August 2017

Last night (Monday 12 August) the Financial Stability Board (FSB) released its consultative document on the "Application of the Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions". For the first time this sets out specific international guidance on resolution requirements for insurers, as well as guidance on client asset protection and Financial Market Infrastructure. This blog post addresses the key areas of impact for insurers within the Insurance annex from the broader consultative document.

This consultation reflects the desire of regulators to reduce, and where possible remove, systemic risk from the international financial system.

In the case of insurers this follows on from the announcement of nine Global Systemically Important Insurers (G-SIIs) in July 2013. 

The consultation recognises that in the majority of circumstances tried and tested "run-off" tools and portfolio transfers will be sufficient to deal with a failing insurer. However, it consults on whether, and in what form, additional tools are required.

Insurer specific objectives

Although the objectives remain in-line with the general objectives for Key Attributes, as detailed in the  broader FSB document released in October 2011, it is clear that the FSB have the additional objective of securing adequate protection for insurance policyholders.

Resolution authority and resolution powers

The explicit level of focus given to policyholder protection suggests a shift in emphasis when dealing with insurance failure. The paper also suggests potential additional powers for resolution authorities.

As with banks, non-viability triggers for an institution will be set by the resolution authority, these would be targeted to take effect before an insurer's balance sheet shows that it is insolvent.

The consultation suggests a significant range of powers for the resolution authority and / or the bridging institution to have available when undertaking to control, manage and operate an insurer's business.  These extend to continuing to write new business. 

The annex also sets out prospective powers to restructure liabilities, including insurance liabilities. These powers are potentially significant and do allow losses to be allocated to some classes of policyholders – potentially extending the concept of "bail in" to insurers.

The cross border effectiveness section also considers mechanisms to focus on the effective operation of liability restructuring when contracts are written within a different jurisdiction from that where the insurer is located.

In addition, the supervisory authority will have powers to transfer insurance liabilities and accompanying reinsurance assets, and while doing so to vary or reduce the value of contracts being transferred. Whilst similar transfer mechanisms exist across Europe, and elsewhere, they tend to be lengthy, don't necessarily have the power to vary liabilities and often fail to deal with reinsurance assets so this could provide a significant development in the resolution tools available to regulators.

The paper also introduces the power to temporarily restrict or suspend the rights of insurance policyholders to withdraw from or change their insurance contracts. This is accompanied with powers to stay rights of reinsurers of the firm to terminate their contracts.

Although the additional powers given to resolution authorities may be beneficial for policyholders and the overall stability of the industry, the effect on creditors requires careful analysis and will differ depending upon the situation in which they are employed.  For this reason the tools are only expected to be employed depending upon need and after consideration of the existing, traditional, run-off and insolvency mechanisms.


The annex reinforces the desire to respect the liquidation hierarchy of claims. However, it emphasises that the hierarchy of claims should give a high priority to policyholders, with shareholders and unsecured creditors, such as debt holders, absorbing losses before they do. This is broadly aligned to the established principle across the EU, where insurance liabilities get priority to other unsecured claims (including those of reinsurers). 

The proposals do, though, allow the resolution authority to depart from the pari passu principle (that all creditors be treated the same) when considering policyholders. This could therefore allow these to be grouped by sub-class (e.g. in same product line) and for those different sub-classes to be treated differently in resolution. 

Funding from compensation schemes

There is a call for privately funded insurance compensation schemes – to bring insurance globally in line with banking. This broadly aligns with the position in the UK where many insurance policyholders are covered by the Financial Services Compensation Scheme but will require more significant changes elsewhere, many jurisdictions do not have established insurance compensation schemes.

Resolvability assessments

As expected the resolvability assessments will focus on the continuity of critical functions and the ability of an insurer financially and operationally to transfer insurance policies to another party.

However there is an apparent extension of focus beyond pure systemic impact into "broader economic" impact.  The implication of this being recognition of the potential "real economic" impact of a major insurer failing.

In order to prepare their resolvability assessments insurers will need to deal with the significant MI and Data issues that may be required to support their analysis. This will particularly be the case for those with complex legal entity structures that do not align to corporate structures upon which current MI and reporting is based.

Recovery and Resolution Plans

The paper also implies that the requirements to agree "living wills" with regulators may be applied to a wider set of insurers, i.e. to all those that could be considered important or critical upon failure, with functions of this type separately identified within firms.

It highlights that recovery plans should be based off severe stress tests, which reflect the specifics of the insurance policies written, for example longer payout durations that reflect the insurers risk profile.

Key questions to consider

  • Which insurers over and above G-SIIs may be required by their regulators to draw up RRPs?
  • How will these proposals extend to insurers not engaged in Non-Traditional Non-Insurance Activities?
  • What additional complexities, if any, will these guidelines introduce for internationally active insurance groups?
  • If agreed, how long would it take to put in place the required legal arrangements to support these proposals?
  • What new capabilities will these proposals introduce for insurers and to what extent does this introduce contingency planning for more severe stresses than are captured within Solvency II?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.