Re/Insurers, IRRD is Coming!

The Insurance Recovery and Resolution Directive, or ‘IRRD’, will bring new planning obligations for re/insurers, requiring firms to demonstrate they are “resolvable”. It will also expand the Central Bank’s powers. Preparation is essential, and firms should begin laying the groundwork now. Our Financial Regulation team explains the steps to take.

The EU Insurance Recovery and Resolution Directive, or ‘IRRD’, must be fully transposed into Irish law by January 2027, and the Central Bank of Ireland (CBI) is likely to be Ireland’s resolution authority. The Department of Finance published a consultation paper outlining aspects of Ireland’s proposed approach to implementing the IRRD in July 2025. Elsewhere, European Insurance and Occupational Pensions Authority (EIOPA) has already begun to publish draft implementing standards. It is therefore timely for Irish re/insurers to analyse IRRD’s requirements and the associated workload and resource implications.

IRRD aims to establish a uniform recovery and resolution framework for EU re/insurers. The new EU requirements are aligned with global developments, where the Financial Stability Board has already publicly identified certain insurance groups as being subject to resolution planning requirements. They include AXA, Allianz, Aviva and Generali, among others.

Like most new regulations, IRRD will impose further compliance burdens on businesses. Irish re/insurance firms have been preparing pre-emptive recovery plans for some years under the Central Bank (Recovery Plan) Regulations 2021, but IRRD will require them to go further. Significantly, it will:

• Introduce resolution planning obligations
• Give new tools to the CBI to resolve troubled re/insurers, and
• Require firms to demonstrate to the CBI’s satisfaction that they are “resolvable” in practice

We explain what this means for re/insurers and their in-house legal and compliance teams.

Recovery and resolution – what’s the difference?

A pre-emptive recovery plan sets out options for how a firm would restore its financial position following a period of business stress. The 2021 CBI Regulations on pre-emptive recovery planning are already more detailed and prescriptive in many respects than the standards contained within IRRD. At first sight therefore it seems unlikely that firms will need to establish significant new recovery planning workflows to satisfy IRRD’s requirements.

A resolution plan, by contrast, sets out how a re/insurer would be dealt with if it were to reach the point of financial non-viability. This could involve restructuring, the transfer of contracts or the use of resolution tools to protect policyholders and maintain critical functions. Under IRRD, resolution plans are to be prepared by the CBI and will not be fully disclosed to the firm itself. In practice, as is the case for banks under the Bank Recovery and Resolution Directive (BRRD), the preparation of these plans requires substantial input from the firms themselves.

IRRD does not mandate that all re/insurers must be subject to recovery and resolution planning. Small and non-complex undertakings are exempt from recovery planning and, in most cases, from resolution planning also. At least 60% of a Member State’s market must be covered by recovery planning and at least 40% by resolution planning, but resolution authorities can go beyond these figures. Within these thresholds, IRRD includes powers for Member States to operate simplified regimes based on criteria that will be specified by EIOPA at a later point. It will be interesting to see what approach Ireland will take to exemptions and simplifications, and the Department of Finance does not comment on this in its consultation paper.

For in-house lawyers at those re/insurers that will be covered by mandatory resolution planning, IRRD will create a new workstream. Re/insurers will be subject to extensive co-operation, reporting and information requirements to facilitate resolution authorities to prepare their plans. In turn, in-house lawyers and compliance professionals are likely to receive regular questions and requests for input and action from internal business units on matters as diverse as:

• The group structure
• The terms of material outsourcing and service agreements, and
• The continuity of employment terms

Practical implications – becoming “resolvability ready”

As part of their regular resolution planning cycle, the CBI must assess whether firms are sufficiently “resolvable”. It will have powers to impose requirements on re/insurers to address or remove any impediments to resolution to ensure that this is the case. An entity will be deemed “resolvable” where it is reasonably feasible for the firm to be resolved either via normal insolvency proceedings or through the application of available resolution tools. Impediments to resolution could include matters like:

• The overall size of an entity’s exposures
• Excessive dependence on intra-group financing or services arrangements, or
• Overly complex legal or operational structures

In the banking industry, this resolvability assessment is conducted annually. Resolvability itself has developed for many credit institutions into a continuous workstream. Under that workstream the resolution authority requires firms to regularly review and simplify their legal, organisational and contractual structures. Firms could be required to update and revise outsourcings, critical services and financial contracts. They may also need to amend policy wordings or document and strengthen intra-group arrangements.

Ireland’s approach to IRRD implementation

According to the Department of Finance consultation paper, Ireland does not currently propose to “gold-plate” or go beyond the IRRD baseline. However, it has left the door open to keep Ireland’s existing 2021 CBI Regulations in place, which are more prescriptive than the IRRD baseline. We are of the view that it would be more appropriate for Ireland to modify the 2021 Regulations in due course so that they fully reflect IRRD and do not go beyond its requirements.

Resolution tools

The tools that will be available to the CBI to step in and resolve a failing re/insurer are set out within the IRRD itself, and are modelled on those already available for banks under the BRRD. IRRD gives EU Member States flexibility to provide additional powers, and the Department of Finance has indicated that it is considering giving the CBI these powers, including:

• Overriding shareholder decisions
• Suspending certain obligations, or
• Restricting certain enforcement rights

We think that Ireland should be cautious in this area. Unlike banks, re/insurers tend to “fail slowly” and there are few if any past examples to assess how authorities will in practice behave in non-viability scenarios. If Ireland’s resolution authority has more extensive legal powers than authorities in other EU countries, Irish re/insurers may be charged a premium on financing costs to compensate for the related uncertainty.

A controversial aspect of IRRD from a policyholder perspective is the “write-down” resolution tool. Under “write-down”, policyholder entitlements can be written down or converted to equity interests to restore the insurer to a solvent position. Ireland proposes to disapply the “write-down” tool for certain liabilities, including those covered by Solvency II Article 275 (technical reserve) assets and some health and long-term care policies. The approach seems an appropriate course from a policyholder point of view. If adopted, it will be important for in-house lawyers and compliance professionals to clearly understand and communicate these distinctions to policyholders and to consider whether policy documentation may require amendment to reflect them.

Contractual provisions

Re/insurers that are subject to resolution planning will be required to ensure that resolution action cannot give rise to a termination, close-out or enforcement event under their contracts where those contracts are governed by non-EU laws. In practice, for banks under BRRD, this required wholesale amendment of large numbers of contracts to introduce “continuity in resolution” clauses.

Given the prevalence of English law as a governing law of re/insurance contracts, it is likely that the same issue will arise for Irish re/insurers. EIOPA will develop implementing standards to specify the content of the required contractual clauses. That said, however, it is worth noting that the main responsibility of revising the relevant networks of contracts will fall on in-house legal teams.

Ireland also intends to require Irish parent undertakings to ensure that their third-country subsidiaries also include “continuity in resolution” clauses in their contracts governed by non-EU laws. This will impact on Irish holding companies with subsidiary operations outside the EU.

Financing arrangements

The IRRD requires EU member states to establish a fund that will be available to finance the taking of resolution measures, including provision for compensation under the “No Creditor Worse Off” principle. Compensation would only arise if a creditor were to receive less under resolution action than it would have received if the entity had been allowed to become insolvent.

The existing Insurance Compensation Fund and Motor Insurers’ Compensation Fund will be inadequate for this purpose, so a new fund will be required. Funding options are under consideration by the Department of Finance and could include ex-ante levies, ex-post contributions or a hybrid system.

What should firms do now?

• Ensure that comprehensive organisational structure charts exist, clearly showing all intra-group governance and organisational dependencies.
• Compile a register of third-party contracts that may require amendment as part of resolution planning. This will be a wider universe than your DORA and outsourcing agreements, since it will also include reinsurances, derivatives, financing arrangements and potentially policy wordings themselves.
• Prepare an outline plan to build up a recovery/resolution planning legal/compliance workstream.
• Identify resources to tackle a round of contractual amendments in late 2026/2027, however the work cannot start in earnest until EIOPA provides the standard clauses.

Comment

The introduction of IRRD requirements in January 2027 will subject Irish re/insurance firms and holding companies to a regular new legal and compliance workstream. If the experience of the banking industry is anything to go by, this will require significant time and resource on a regular and recurring basis as the CBI’s requirements evolve. We recommend that all Irish re/insurers start planning to set up a legal and compliance workstream to focus on this area in 2026 so that they have the expertise and resources to hit the ground running when the regime becomes effective.

Our Financial Regulation team and wider Financial Services practice are unique in having practitioners with substantial experience of both the banking and insurance regimes and we are ready to help Irish re/insurance firms on this journey.

For more information and expert advice, please get in touch with a member of our Financial Regulation team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.