Insurance Recovery and Resolution Directive starts to apply

The Insurance Recovery and Resolution Directive (IRRD) (external site), Directive (EU) 2025/1, sets EU rules for two situations: an insurer in difficulty that can still recover, and an insurer that is failing. Recovery is the insurer's own plan to restore its position; resolution is the orderly handling of a failure by public authorities (EUR-Lex (external site)).

Before this directive, the handling of a failing insurer depended on national law; the directive gives every Member State a common framework (EUR-Lex (external site)).

Insurers prepare pre-emptive recovery plans, written in advance of any stress. Supervisors make sure that at least 60 percent of the life market, measured by gross technical provisions, and 60 percent of the non-life market, measured by gross written premiums, are covered (EUR-Lex (external site)).

Each plan contains qualitative and quantitative indicators that show when remedial action is considered or taken. The indicators may cover capital, liquidity, asset quality, profitability, market and macroeconomic conditions, and operational events (EUR-Lex (external site)).

The indicators do not create new prudential requirements, and a breach of the Solvency Capital Requirement (SCR) triggers remedial action (EUR-Lex (external site)).

As an example, an indicator could sit at a solvency ratio of 130 percent, above the 100 percent SCR level, so that action starts before the legal minimum is reached (EUR-Lex (external site)).

Insurers and reinsurers in the EU are covered. The duty to prepare pre-emptive recovery plans applies to those the supervisor selects to reach the market share thresholds (EUR-Lex (external site)).

A Capital Reporting Analyst links the recovery indicators to solvency figures. An ALM Analyst and a Liquidity Risk Analyst supply the liquidity indicators (EUR-Lex (external site)).

An Operational Risk Analyst adds indicators for operational events, and a Regulatory Change Analyst follows national transposition (EUR-Lex (external site)).

An Internal Auditor and a Compliance Officer check that the recovery plan follows the national rules and the EIOPA guidelines (EUR-Lex (external site)).

Directive (EU) 2025/1 was adopted on 27 November 2024 and published in the Official Journal in January 2025 (EUR-Lex (external site)).

The European Insurance and Occupational Pensions Authority (EIOPA) is due to issue guidelines under Article 5(11) by 29 January 2027, and a further set of guidelines by 29 July 2027 (EUR-Lex (external site)).

Member States adopt and publish national rules by 29 January 2027 and apply them from 30 January 2027, under Article 100. Both dates are set in the directive and confirmed (EUR-Lex (external site)).

Solvency II sets the rules for insurers while they operate. The Commission proposed a separate framework for recovery and resolution in 2021, together with the review of Solvency II (EUR-Lex (external site)).

That review became Directive (EU) 2025/2, adopted on the same day as the IRRD, and both apply from 30 January 2027 (EUR-Lex (external site)).