IRRD will positively impact policyholders, says Moody’s
- December 6, 2023
- Posted by: Web workers
- Category: Finance
Moody’s Investors Service analysts underscore the positive impact of the EU’s Insurance Resolution and Recovery Directive (IRRD) on policyholders.
The IRRD, an EU-wide legislative framework set to be implemented in 2026, aims to uphold financial stability and safeguard policyholders during insurer financial turmoil.
According to Moody’s report, the IRRD mandates EU member states to establish dedicated insurance resolution authorities.
These authorities will be equipped with tools such as solvent runoff, asset and liability sales and transfers, and adjustments to capital instruments and liabilities to manage failing insurers effectively. These measures aim to maintain continuous coverage and prevent insurer liquidation.
Moreover, the IRRD requires major insurers, representing a combined 60% of the market share, to devise preemptive recovery plans in times of financial distress. Meanwhile, resolution authorities will craft resolution plans for companies accounting for a combined 40% market share.
Moody’s analysts conclude that “the regime should in most circumstances help maintain insurance coverage when an insurer faces financial distress, which is positive for policyholders.”
Additionally, the IRRD could accelerate losses during stressful situations by directing capital instruments to absorb losses before taking any resolution action, affecting bondholders and possibly leading to policyholder obligations being adjusted as a last resort, potentially changing the creditor hierarchy.
Following the UK’s decision to exit the EU, they have established their own insurer resolution regime (IRR), granting intervention powers to the Bank of England (BOE) in cases of failing insurers or potential failures. While the regime will cover UK branches of foreign insurers, it does not extend to the Lloyd’s of London market.
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