Insurers told to prepare recovery plans within 12 months

Irish-regulated insurers have been ordered by the Central Bank to prepare recovery plans within the next year for the unlikely event that they run into financial trouble, as the regulator seeks to copy some aspects of rules brought in for euro-zone banks in the wake of the financial crisis.

Insurers must have their plans completed by the end of March 2022 and update their blueprints at least every 12 months, according to the regulator.

"This regulation is an important step forward in strengthening the risk-management frameworks of insurance firms and should reduce the probability of (re)insurers failing and the impact of such failures," said Domhnall Cullinan, director of insurance supervision at the Central Bank.

The regulator received pushback from some insurers in recent months on its plans to introduce a recovery regime for the industry, with a number drawing attention to the fact that the Central Bank is moving ahead of developments across the wider European Union.

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However, the Central Bank said: “Effective recovery planning is a priority for the Central Bank. As with other member states, such as France, Germany, Denmark and the Netherlands, the Central Bank wishes to introduce a recovery regime as early as possible notwithstanding if it is ahead of any EU-wide framework.”

Possibility of failure

The Central Bank said that while a recovery plan would improve insurers’ ability to respond to severe stress, it would not eliminate the possibility of failure. “However, a well-developed recovery plan should also facilitate the transition into resolution (administration or liquidation) where required,” it said.

By contrast, euro-zone banks are required to file recovery and resolution plans – or what are known as living wills – to regulators in recent years on foot of reforms brought in as a result of the financial crisis.

While the Republic does not have a comprehensive resolution framework for insurers at present, the Central Bank does have existing responsibilities and powers to manage failures in the sector.

“The recovery planning regulations will be embedded in the existing supervisory regime and complement the existing measures to deal with firm failure, aiding both the bank’s and insurers’ readiness to deal with stress events and reducing the risk of disorderly failure,” it said.

Irish consumers have had to face levies to cover the cost of the implosions of insurers such as PMPA in the 1980s, Quinn Insurance in 2010 and Malta-based but Irish-focused Setanta insurance in 2014.