WHAT IS THE AIM OF THE DIRECTIVE?
Directive (EU) 2025/1 sets up a harmonised European Union (EU) framework for the recovery and resolution of insurance and reinsurance undertakings, protecting policyholders and financial stability while limiting public financial support.
KEY POINTS
Scope and proportionality
The directive applies to:
- insurance and reinsurance undertakings authorised under the Solvency II Directive (see summary), except those already exempted as small undertakings;
- insurance holding companies and mixed financial holding companies;
- EU branches of non-EU-country insurance and reinsurance undertakings.
Measures may also extend to essential service providers, where necessary, to ensure continuity of provision of essential goods and services to the undertaking under resolution.
EU Member States may adopt stricter or additional rules consistent with the directive.
Pre-emptive recovery planning
- Supervisory authorities select undertakings on the basis of predefined criteria, and those undertakings must prepare pre-emptive recovery plans to restore financial soundness under stress.
- At least 60 % of a Member State’s life and non-life markets, respectively, must be subject to pre-emptive recovery planning.
Resolution planning
- Each Member State designates a resolution authority.
- Resolution authorities select undertakings on the basis of predefined criteria for which they need to prepare resolution plans.
- At least 40 % of a Member State’s life and non-life markets, respectively, must be subject to resolution planning.
- Plans identify critical functions, resolution strategies and measures to address obstacles to resolvability.
- Resolution authorities carry out resolvability assessments and have the power to require proportionate measures to remove or reduce obstacles to resolution, where necessary.
Conditions and objectives of resolution
Resolution may be applied only when:
- the undertaking is failing or likely to fail;
- no private or supervisory action can prevent it; and
- resolution is required in the public interest.
Its objectives are to:
- protect policyholders, beneficiaries and claimants;
- ensure continuity of critical functions;
- preserve financial stability; and
- minimise recourse to public financial support.
Losses are borne first by shareholders and then by creditors, with equal treatment within each class.
The no creditor worse off (NCWO) principle ensures no shareholder, creditor or policy holder is worse off in resolution than in insolvency.
Resolution tools and financing
- Resolution measures must rely on fair and prudent valuations of assets and liabilities.
- Resolution authorities may use the following tools:
-
- solvent run-off – a supervised winding down of the business;
- sale of business – the transfer of shares, assets or liabilities to another company;
- bridge undertaking – a temporary entity created to maintain operations until a buyer is found;
- asset-and-liability separation – the transfer of assets and liabilities to a special vehicle to preserve value;
- write-down or conversion of liabilities – the reduction or conversion of certain liabilities to absorb losses.
- Resolution authorities may temporarily suspend payments or contract termination to support resolution.
- Each Member State may set up financing arrangements funded by insurers and reinsurers to cover at least payments under the NCWO principle.
Cooperation, review and amendments
FROM WHEN DO THE RULES APPLY?
The directive has to be transposed into national law by 29 January 2027. The rules will apply from 30 January 2027.
BACKGROUND
For further information, see:
MAIN DOCUMENT
Directive (EU) 2025/1 of the European Parliament and of the Council of 27 November 2024 establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 and Regulations (EU) No 1094/2010, (EU) No 648/2012, (EU) No 806/2014 and (EU) 2017/1129 (OJ L, 2025/1, 8.1.2025).
RELATED DOCUMENTS
Directive (EU) 2017/1132 relating to certain aspects of company law.
Successive amendments to Directive (EU) 2017/1132 have been incorporated into the original text. This consolidated version is of documentary value only.
Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market.
See consolidated version.
Regulation (EU) No 806/2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (SRM regulation).
See consolidated version.
Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (BRRD).
See consolidated version.
Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR).
See consolidated version.
Regulation (EU) No 1094/2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority (EIOPA)).
See consolidated version.
Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).
See consolidated version.
Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies.
See consolidated version.
Directive 2004/25/EC on takeover bids.
See consolidated version.
Directive 2002/47/EC on financial collateral arrangements (Financial Collateral Directive (FCD)).
See consolidated version.
