Recovery and resolution plans (RRPs) are receiving a lot of attention from regulators lately. In an InsuranceERM article, Milliman consultants Bridget MacDonnell, Eamonn Phelan, and Eoin King explore the Solvency II requirements related to RRPs for insurers and reinsurers.
The article is based on the authors’ paper “Recovery and Resolution Plans: Dealing with financial distress.”
On December 2, the European Insurance and Occupational Pensions Authority (EIOPA) issued a discussion paper on “Potential Harmonisation of Recovery and Resolution Frameworks for Insurers.” The paper sets out a number of considerations for the development of a harmonized European framework in the recovery and resolution planning space. It is open to comments from stakeholders until February 28, 2017.
Recovery and resolution planning is a very topical subject at present and there are numerous examples of requirements for financial services companies and regulatory authorities to develop recovery and resolution plans and frameworks. For example, larger financial institutions that are classified as globally systemically important financial institutions (G-SIFIs) and globally systemically important insurers (G-SIIs) are required to undertake recovery and resolution planning under the Financial Stability Board’s “Key Attributes of Effective Resolution Regimes for Financial Institutions” and similar requirements adopted by the International Association of Insurance Supervisors. This is also an area of focus for European regulators. In Ireland, for example, Sylvia Cronin, Director of Insurance Supervision at the Central Bank, noted at the European Insurance Forum in March that recovery and resolution for insurers is an area of particular interest for the Central Bank.
Recovery and Resolution Plans (RRPs) have been attracting a lot of regulatory attention of late in the reinsurance industry. Globally, we have seen requirements for RRPs come into force for Global Systemically Important Insurers (G-SIIs) as well as across many parts of the banking industry.
In Europe, the European Insurance and Occupational Pensions Authority (EIOPA) has included an operational objective in relation to its focus on RRPs in its Annual Work Programme for 2016. In the United States, a small number of insurers designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve are required to periodically submit resolution plans.
In this paper, Milliman’s Eoin King and Bridget MacDonnell discuss the latest developments in relation to RRPs, explore the available toolkit, and provide insight into real-life situations through the use of colorful case studies involving different strategies that have been implemented in practice around the world.