Plans for an EU-wide insurance resolution framework are unlikely to affect insurers’ ratings, at least in the near term, according to Fitch Ratings.
The Insurance Recovery and Resolution Directive (IRRD) proposals, put forward by the European Commission in September, aim to harmonise approaches across the EU to resolving failing insurers.
The proposals prioritise the continuity of insurance cover from failing insurers without relying on taxpayer-funded bail-outs.
The IRRD covers several tools for dealing with a failing insurer, including the write-down or conversion of capital instruments and other liabilities, the withdrawal of authorisation to write new business, putting business into run-off, and selling the company to a new owner.
Fitch believes that the bail-in tool to write-down or convert instruments should not affect insurance entity or debt ratings, as the directive does not appear to imply any changes to debt tiering, issuance limits or structural features under Solvency II.
Additionally, there is no immediate prospect that EU insurers will have to issue a new class of debt to increase their loss absorption capacity as EU banks had to do when the BRRD was introduced.
The IRRD suggests that national insurance guarantee schemes could contribute to funding the resolution process by compensating policyholders for any losses suffered, as they would do now in the countries they are available in.
Fitch notes that the costs of such schemes would depend on the design of the funding arrangements, but would be distributed across the insurers in each market.
The IRRD legislative package is set to be discussed by the European Parliament and Council, and, once it is finalised, member states will have 18 months to implement it into their national legislation.
