2025-2026 - IAIS - Public consultation on draft revised Application Papers on recovery and resolution

  • 2025 11 - IAIS - Draft revised Application Paper on resolution powers, preparation and plans - 73p
  • p11-12 - 2.2 Objectives of a resolution framework
    • 20. A resolution framework may serve objectives that include: policyholder protection, contributing to financial stability and minimising the reliance on public funding. A jurisdiction may, at its discretion, choose to rank these resolution objectives.
    • 21. The protection of policyholders is crucial, and legislation should support the objective of protecting policyholders. However, this does not mean that policyholders will be fully protected in all circumstances and does not exclude the possibility that some losses could be absorbed by policyholders, to the extent they are not covered by PPSs or other mechanisms. The legislation should provide a scheme for prioritising the payment of claims of policyholders and other creditors in liquidation (liquidation claims hierarchy). 
    • 23. Finally, resolution should seek to minimise any reliance on public funding. An expectation that public funding will be available to remedy an insolvency may create a “moral hazard” and provide an incentive for an insurer to engage in risky behaviour. Furthermore, as provided in ICP 12, in principle, any public funding used for the resolution of the insurer should be recouped from the insurance sector in a transparent manner; such recouping strengthens market discipline and encourages players to act responsibly. 
  • p14 - 2.5 Safeguards
    • 36. The NCWOL principle requries that creditors are entitled to an outcome at least what they would have obtained in a liquidation of the insurer. Creditors whose contractual rights are impaired by resolution actions should be compensated if the impairment is worse than it would be under liquidation. Accordingly, legislation should provide a remedy to compensate such creditors if resolution fails to achieve compliance with the NCWOL principle. This could be done, for instance, through the operation of a resolution fund. 15
      • 15 - 2022 01 - FSB - As a reference material on resolution funds, see the FSB, Resolution Funding for Insurers: Practices Paper - 28p
  • p15 - 3 Conditions for entry into resolution
    • 40. There should be resolution conditions that need to be satisfied in order to justify initiating resolution. At a minimum, this should include the determination that the insurer is failing, or is likely to fail, and has no reasonable prospect of recovering to viability. For example, this includes situations where recovery is unlikely to be achievable within a reasonable timeframe. Jurisdictions should articulate clear standards or suitable indicators of non-viability in the frameworks developed by their relevant authorities to guide decisions on whether an insurer meets the conditions for entry into resolution. Relevant authorities should assess such standards or indicators in the context of the actual circumstances pertaining to the specific situation being considered. To facilitate the resolution of IAIGs, it is recommended for involved supervisors to share information on, and, where possible, coordinate, the applicable triggers for entry into resolution in their respective jurisdictions (see Section 7).