HM Treasury (HMT) is consulting until 20 April on a resolution regime for insurers (IRR). As anticipated in KPMG's 2022 paper A resolution framework for insurers — what can the industry expect?, HMT proposes a dedicated resolution framework for insurers and a new Resolution Authority (RA), housed within the Bank of England.

The RA has been tasked with:

  1. Pre-resolution planning: conducting resolvability assessments and recovery and resolution planning (RRP) to ensure the RA has an executable strategy for dealing with a potential failure.
  2. Exercising judgement (in consultation with the PRA, FCA and HMT), as to whether an insurer that is `failing or likely to fail' (FOLTF) should be subject to its new stabilisation powers (such as transfer to a third party or a bridge entity, and bail in) — and then deploying these. 

Failure of insurers in the UK has been a rare occurrence. The exits that have happened have been successfully managed primarily via solvent run offs and portfolio transfers under Part VII of the Financial Services and Market Act (FSMA). We envisage that these will continue to be the usual routes towards exit, with the IRR stabilisation powers only triggered in exceptional cases.


The reach of the IRR is intentionally broad, able to draw in all UK authorised insurers1. Out of scope are insurers not subject to Solvency II, friendly societies, and Lloyd's and its market2. However, HMT envisages only a subset of insurers to be subject to the IRR in practice.
RA-led preparation for resolution is primarily intended for systemically important firms. HMT points to the list of the UK firms designated as Internationally Active Insurance Groups (IAIGs) as a useful — but non-exhaustive — indicator of who might be caught. Insurers deemed to provide `critical functions' may also be asked to plan for a smooth exit and continued provision of these services to policyholders. Critical functions are only loosely defined in the consultation as those whose sudden discontinuation would be likely to disrupt services that are essential to the UK economy or endanger the financial stability of the UK.

The RA would also need to exercise judgement, largely based on a public interest assessment, at the point of FOLTF as to whether to take charge of the insurer's resolution and apply stabilisation powers or let the usual winding down or insolvency processes run their course. Again, HMT envisages that only a small number of cases would require recourse to the RA tools.

How does IRR fit in with existing measures?

The IRR has parallels to the resolution regime for banks (Part 1 of the Banking Act) and the EU's proposed Insurance Recovery and Resolution Directive (IDD). It also closely mirrors the framework set out in the Financial Stability Board's paper on Key Attributes of effective resolution regimes for financial institutions.

There are some notable differences, however, including the absence of a minimum requirement for own funds and eligible liabilities as in bank resolution reflecting the different structure and risk profile of an insurer's balance sheet, and the addition of tools specific to the restructuring of insurance liabilities.

The IRR would sit on top of existing approaches to recovery and resolution, including:

  • Existing — and about to be expanded — PRA requirements to prepare for recovery and exit.
  • PRA's `ladder of intervention' powers under Solvency II.
  • Insolvency regime for insurers currently being modified as part of the Financial Services and Markets Bill (FSMB), the implementation of which the PRA is currently consulting on.

Implications for insurers

Insurers will effectively face a two-tier system for recovery and resolution planning and exit. Firms deemed systemically important, particularly complex or as providing critical services will be subject to scrutiny by new RA (as well as the PRA). The remainder will continue to be in the PRA's domain and should keep an eye out for a consultation later in 2023 which is expected to extend and clarify expectations. This is consistent with the PRA's `Dear CEO' letter to insurers, which highlighted its expectation for smaller insurers to consider how they might exit the market.

As ever, the extent and degree of impact will depend on the supervisory approach, and the consultation leaves open important aspects such as the precise definition of systemic insurer and critical services. Insurers in the grey area will want to have clarity as soon as possible as to whether they are within the RA's remit, but all firms would benefit from early preparation and regulatory engagement on their recovery and resolution plans given this is a key area of supervisory focus.

Insurers would benefit from being proactive in demonstrating how any potential barriers to resolvability can be mitigated or resolved, rather than waiting for enforceable direction from the RA.

Firms could get on the front foot by:

  • Considering governance and resourcing arrangements to effectively engage with the RA on information requests, simulation exercises and operational assessments.
  • Reviewing existing recovering and resolution plans and mapping out to what extent they demonstrate readiness for the application of the stabilisation powers. Elements such as corporate structure, contractual features, outsourcing and operational processes may be covered already but require an additional level of analysis to assess for barriers to resolvability.
  • Assessing the challenges of preparing for the valuation of balance sheets in distress, particularly life insurers with long-term liabilities and assets matched to support these.
  • Considering if any of products or services could be deemed critical, via a two-step assessment of substitutability (do others in the market offer similar products or could easily take over their continued operation?) and policyholder impact of sudden withdrawal. Firms will then need to have an operational plan to ensure the critical products can continue operating — by being clear on the functions that underpin them (customer-facing services such as claims handling, internal functions such as finance, operations and HR, and including any third party providers) and how these can continue to support continued operation in times of distress. 

Given an increasingly complicated patchwork of requirements, insurers would benefit from their preparations dovetailing with related workstreams, including operational resilience. Similarly, firms may consider how the stress testing of operational continuity could interlink with simulation exercises of resolvability.

Finally, with two authorities involved in pre-exit planning, impacted insurers will be hoping for effective information sharing and commonality of purpose between the PRA and RA to avoid significant duplication. HMT envisages close cooperation between the PRA and RA on their recovery and resolution work but, in practice, a degree of overlap — or even divergence — may be inevitable given distinct, if complementary, statutory objectives.

Next steps

After the consultation closes, HMT and the PRA will have some way to go to finalise the policy. The proposals would require legislative change, the granting of a delegated power to HMT to define critical functions and the development of a Code of Practice for the use of the Resolution tools.

As mentioned above, this would be in parallel to the modifications being made to the insurance insolvency framework as part of the FSMB. The PRA is also expected to consult this year on requirements for insurers to prepare exit plans — of broader applicability than the IRR.

Overview of the IRR

Objectives of the IRR

  • To protect and enhance the stability of the financial system of the UK, in particular by: (a) preventing contagion; and (b) protecting the ability of those who are or may become insurance policyholders to access critical functions, including the continuity of services on existing policies.
  • To protect and enhance public confidence in the stability of the financial system of the UK.
  • To protect public funds, including by minimising reliance on extraordinary public financial support.
  • To protect policyholders of the firm in resolution, including those covered by an insurance guarantee scheme.
  • To avoid interfering with property rights in contravention of a Convention Right (within the meaning of the Human Rights Act 1998).

Resolution conditions (RC)

All these conditions have to be met for an insurer to be placed in RA-led resolution

  • RC 1: the PRA assesses that an insurer is failing or likely to fail (FOLTF).
  • RC 2: the RA assesses that, having regard to timing and other relevant circumstances, it is not reasonably likely that (ignoring the stabilisation powers) action will be taken by or in respect of the insurer that will result in RC 1 ceasing to be met.
  • RC 3: the RA assesses that the exercise of the stabilisation powers is necessary having regard to the public interest in the advancement of one or more of the statutory resolution objectives.
  • RC 4: the RA assesses that one or more of the statutory resolution objectives would not be met to the same extent if stabilisation powers were not deployed.

Stabilisation options

  • Transfer to a Private Sector Purchaser: the RA would be able to make a full or partial transfer of the shares or the business of a failing insurer to a willing private sector purchaser via a transfer of securities or property (i.e., assets and liabilities). Crucially, the RA would be able to do this outside of the Part VII mechanism, side-stepping the usual process of obtaining court approval, policyholder consent and consulting with other authorities.
  • Bridge Institution: the RA would be empowered to establish a temporary bridge institution. This would allow additional time for due diligence and valuation while ensuring that critical functions can continue to be provided.
  • Bail In: the RA would have the power to restructure, modify, limit or write down the failing insurer’s liabilities in order of creditor preference, including insurance liabilities. The Financial Services Compensation Scheme (FSCS) would provide top up payments covering eligible policyholders up to the same limits that would apply under insolvency. The objective of bail in is to restore a level of capital coverage sufficient to proceed to solvent run off. Asking policyholders to bear some of the cost of failure can be controversial, as seen in reactions to the EU’s proposed framework, although — unlike in the EU — this would offset by FSCS protection.
  • Temporary public ownership: proposed as a temporary measure of last resort.

Additional tools

  • Balance sheet management: power to establish an asset management vehicle for the run-down of non-performing or difficult-to-value assets, providing an opportunity to maximise the value of assets through a more orderly wind down over time.
  • Insurance administration procedure: providing the RA with the flexibility to use the stabilisation tools above while ensuring the insurer’s critical function can continue to operate.

Oher considerations

  • Ancillary powers: The RA would be given wide-ranging ancillary powers, including the power to remove or replace directors and senior managers, prohibit the payment of dividends and temporarily suspend payments to creditors.
  • Cross-border considerations: the HMT intends for the IRR to provide a framework for the RA to recognise — or not — the resolution actions taken by other jurisdictions’ authorities. The consultation is short on detail on its approach to resolution of cross-border insurers, and firms are at risk of being subject to duplicative or conflicting planning requirements and/or resolution actions.
  • No Creditor Worse Off (NCWO): HMT is looking to provide for a mechanism by which creditors would be provided with NCWO compensation, in line with the principle that creditors should receive at a minimum what they would have received under insolvency.

Pre-resolution planning


  • Resolvability assessments: aimed at identifying and addressing the barriers to resolution. Resolvability assessments will build on work already carried out (or planned) by the PRA but would go a step further in getting firms ready for exit. This includes giving the RA the power to direct a firm to remedy any barriers to resolvability so that stabilisation tools can be effectively applied.
  • Ongoing Recovery and Resolution Planning (RRP): these would set out the proposed resolution strategy for an insurer and an operational plan for implementation, including what stabilisation powers would be applied and how. The plans would be updated on an annual basis or more frequently if there are changes to the firm’s structure, strategy or operating condition. Again, this would leverage — but go beyond — work already done in fulfilment of the PRA’s requirements.

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1It also extends to mixed financial holding companies, insurance holding companies, mixed activity insurance holding companies, regulated entities within the corporate group of an insurer, other non-regulated entities within the corporate group of an insurer and the UK branches of foreign insurers.
2The latter of these, Lloyd's and its market, are covered by the Insurers (Reorganisation and Winding Up) (Lloyd's) Regulations 2005 and the Lloyd's Market Reorganisation Order.
3The list was updated in December 2022 to include Aviva plc, British United Provident Association Limited, Legal & General Group Plc, M&G plc and Phoenix Group Holdings plc.