Changes from plenary report to adopted text

RemovedDRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

AddedP9_TA(2024)0294

Changedon the proposal for a directive of the European Parliament and of the Council establishingEstablishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012

Removed(COM(2021)0582 – C90365/2021 – 2021/0296(COD))

AddedCommittee on Economic and Monetary Affairs

AddedPE732.670

AddedEuropean Parliament legislative resolution of 23 April 2024 on the proposal for a directive of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012 (COM(2021)0582 – C9-0365/2021 – 2021/0296(COD))

▸5 unchanged paragraphs

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2021)0582),

– having regard to Article 294(2) and Article 114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90365/2021),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

Change 1

Removed– after consulting the European Central Bank,

– having regard to the opinion of the European Economic and Social Committee of 23 February 2022,

Added– having regard to the provisional agreement approved by the committee responsible under Rule 74(4) of its Rules of Procedure and the undertaking given by the Council representative by letter of 24 January 2024 to approve Parliament’s position, in accordance with Article 294(4) of the Treaty on the Functioning of the European Union,

▸5 unchanged paragraphs

– having regard to Rule 59 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0251/2023),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 2

RemovedAMENDMENTS BY THE EUROPEAN PARLIAMENT*

AddedP9_TC1-COD(2021)0296

Removedto the Commission proposal

AddedPosition of the European Parliament adopted at first reading on 23 April 2024 with a view to the adoption of Directive (EU) 2025/… of the European Parliament and of the Council establishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132 and Regulations (EU) No 1094/2010, (EU) No 648/2012, (EU) No 806/2014 and (EU) 2017/1129

Removed---------------------------------------------------------

Added(As an agreement was reached between Parliament and Council, Parliament's position corresponds to the final legislative act, Directive (EU) 2025/1.)

Removed2021/0296 (COD)

RemovedProposal for a

RemovedDIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

Removedestablishing a framework for the recovery and resolution of insurance and reinsurance undertakings and amending Directives 2002/47/EC, 2004/25/EC, 2009/138/EC, (EU) 2017/1132 and Regulations (EU) No 1094/2010 and (EU) No 648/2012

Removed(Text with EEA relevance)

RemovedTHE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

RemovedHaving regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

RemovedHaving regard to the proposal from the European Commission,

RemovedAfter transmission of the draft legislative act to the national parliaments,

RemovedHaving regard to the opinion of the European Central Bank,

RemovedHaving regard to the opinion of the European Economic and Social Committee,

RemovedActing in accordance with the ordinary legislative procedure,

RemovedWhereas:

Removed(1) Distress of insurance undertakings can have substantial repercussions on the economy and social welfare in Member States should such distress lead to a disruption of the protection provided to policy holders, beneficiaries or injured parties. The role of reinsurance undertakings in the economy, their interconnectedness with primary insurance undertakings and financial markets more broadly, as well as the relatively concentrated reinsurance market require an appropriate framework to deal with their distress or failure in an orderly fashion. The recovery and resolution of both primary insurance undertakings and reinsurance undertakings should therefore be addressed, taking into account their respective specificities.

Removed(2) The global financial crisis of 2008 exposed the vulnerabilities of the financial sector and its interconnectedness. Causes of distress and failure appeared to be linked, amongst others, to the evolution of financial markets and to the intrinsic nature of insurance or reinsurance activities. In that regard, underwriting risks, that is under-provisioned claims, mispricing, that is underestimated premiums, asset-liability mismanagement and investment losses are often referred to as main sources of concern for insurance and reinsurance undertakings. In that context, taxpayer money has been used to restore the deteriorated financial conditions of several insurance undertakings. Although Directive 2009/138/EC of the European Parliament and of the Council aimed at strengthening the financial system in the Union and the resilience of insurance and reinsurance undertakings, it did not completely eliminate the possibility of failures of such insurance and reinsurance undertakings. High market volatilities and prolonged low levels of interest rates could be particularly harmful for the profitability and solvency position of insurance and reinsurance undertakings. The sensitivity of insurance and reinsurance undertakings to market and economic developments therefore calls for particular caution and an adequate framework to manage, including in a pre-emptive manner, potential deteriorations of the financial positions of such undertakings. Some recent failures and near-failures, in particular of a cross-border nature, illustrated weaknesses of the current framework that need to be addressed to organise adequately the orderly exit from the market of insurance or reinsurance undertakings.

Removed(3) Services performed by insurance or reinsurance undertakings that cannot be substituted easily within a reasonable timeframe, or at a reasonable cost for policy holders, beneficiaries or injured parties, need to be seen as critical insurance products that need to be continued. Such services can be critical at Union, national or regional level. The continuity of insurance or reinsurance protection is often preferable to the winding down of a failing undertaking as such continuity delivers the most favourable outcome for policy holders, beneficiaries or injured parties. It is therefore crucial that adequate tools are available to prevent failures and, where failures occur, to minimise negative repercussions by preserving the continuity of those critical insurance products.

Removed(4) Ensuring effective resolution of failing insurance and reinsurance undertakings within the Union is an essential element in the completion of the internal market. The failure of such undertakings has an impact not only on policy holders and possibly the real economy and financial stability of the markets on which those insurance and reinsurance undertakings operate directly, but also on the trust in the internal market for insurance. The completion of the internal market in financial services has reinforced the interplay between the different national financial systems. Insurance and reinsurance undertakings are active on financial markets to manage their investment portfolio and the risks related to their activities. ▐In that context, the inability of Member States to address the failure of an insurance or reinsurance undertaking and resolve it in a way that is predictable and harmonised and would effectively prevent broader systemic damage, can undermine the stability of financial markets and, consequently, the internal market in the field of financial services.

Removed(5) The global financial crisis of 2008 highlighted the need to develop an appropriate recovery and resolution framework for insurance and reinsurance undertakings. At international level, the Financial Stability Board (‘FSB’) developed, in October 2014, Key Attributes on effective resolution regimes for any insurance undertaking that could be systemically significant or critical if it fails. In June 2016, the FSB released complementary guidance on developing effective resolution strategies and plans for systemically important insurers. In parallel, the International Association of Insurance Supervisors (‘IAIS’) adopted in November 2019 Insurance Core Principles for all insurance and reinsurance undertakings, a Common Framework for Internationally Active Insurance Groups detailing standards for pre-emptive recovery planning, and actions that authorities are expected to take towards an insurance or reinsurance undertaking that would exit the market and enter into resolution . Those developments should be taken into account when laying down a framework for the recovery and resolution of failing insurance and reinsurance undertakings.

Removed(6) Many insurance and reinsurance undertakings are operating beyond national borders. A lack of coordination and cooperation between public authorities to prepare and manage the distress or failure of an insurance or reinsurance undertaking operating across borders would undermine Member States’ mutual trust, result in a suboptimal outcome for policy holders, beneficiaries and injured parties and affect the credibility of the internal market for insurance.

Removed(7) There is currently no harmonisation of the procedures at European Union level for resolving insurance or reinsurance undertakings in a coordinated manner. Instead, considerable substantive and procedural differences between national laws, regulations and administrative provisions that govern the failure of insurance and reinsurance undertakings are observed across Member States. In addition, corporate insolvency procedures may not always be appropriate for insurance or reinsurance undertakings, as those procedures may not always ensure an adequate continuation of the critical functions for policy holders, beneficiaries and injured parties, the real economy or the financial stability as a whole.

Removed(8) It is necessary to ensure the continuity of the critical functions of failing insurance or reinsurance undertakings, or of insurance or reinsurance undertakings that are likely to fail, while minimising the impact of such an undertaking’s failure on the economy and financial system. It is therefore necessary to lay down a framework to provide authorities with a credible set of tools to intervene sufficiently early and quickly in insurance or reinsurance undertakings that are failing or likely to fail. Such framework should ensure that shareholders bear losses first and that creditors bear losses after shareholders, provided that no creditor incurs greater losses than they would have incurred if the insurance or reinsurance undertaking had been wound up under normal insolvency proceedings in accordance with the no creditor worse off principle.

Removed(9) In accordance with the aim pursued in Directive 2009/138/EC the framework to be laid down should enable authorities to ensure the continuity of insurance protection for policy holders, beneficiaries and injured parties, transfer viable activities and portfolios of the insurance or reinsurance undertaking where appropriate, and apportion losses in a manner that is fair and predictable. Those objectives should help avoid unnecessary losses or social hardship falling on policy holders, beneficiaries and injured parties, mitigate negative impacts on the real economy, minimise negative effects on financial markets and minimise the costs for taxpayers. Resolution authorities should have a certain degree of flexibility to balance those objectives as appropriate to the specificities of the situation, in particular focusing on policy holder protection.

Removed(10) The review of Directive 2009/138/EC, and in particular the introduction of more risk-sensitive capital requirements, strengthened supervision, enhanced liquidity monitoring and better tools for macro-prudential policies, should further reduce the likelihood of failures of insurance or reinsurance undertakings and enhance the resilience of those undertakings to economic stress, whether caused by systemic disturbances or by events specific to the individual undertaking. Nevertheless, despite a sound and robust prudential framework, situations of financial distress cannot be completely excluded. Member States should therefore be prepared and have adequate recovery and resolution tools in place to handle situations involving both systemic crises and failures of individual undertakings. Such tools should include mechanisms that enable authorities to deal effectively with undertakings that are failing or likely to fail. The use of such tools and the exercise of such powers should take into account the circumstances in which the failure occurs.

Removed(11) Some Member States have already introduced pre-emptive recovery planning requirements, and mechanisms to resolve failing insurance or reinsurance undertakings. However, the absence of common conditions, powers and processes for the recovery and resolution of insurance or reinsurance undertakings across the Union is likely to constitute barriers to the smooth operation of the internal market and hinder cooperation between national authorities when dealing with distressed or failing cross-border groups of undertakings. That is particularly true where different approaches mean that national authorities do not have the same level of control or the same ability to resolve insurance or reinsurance undertakings. Those differences in recovery and resolution regimes may affect the level playing field and potentially create competitive distortions between undertakings. Those barriers should be eliminated and rules should be adopted to ensure that the internal market is not undermined. To that end, rules governing the pre-emptive recovery and resolution of insurance or reinsurance undertakings should be made subject to common minimum harmonisation rules. In order to ensure consistency with existing Union legislation in the area of insurance services, the pre-emptive recovery and resolution regime should apply to insurance or reinsurance undertakings that are subject to the prudential requirements laid down in Directive 2009/138/EC.

Removed(12) The failure of an entity affiliated to a group can rapidly impact the solvency and the operations of the whole group. It is therefore necessary to have in place group pre-emptive recovery and resolution planning requirements. In addition, authorities should possess effective means of action with respect to those entities to impose remedial actions that take into account the financial soundness of all group entities, address impediments to resolvability in a group context and produce a consistent resolution scheme for the group as a whole, in particular in a cross-border context. The pre-emptive recovery and resolution planning and resolvability requirements and the resolution regime should therefore also apply to parent undertakings, holding companies and other group entities, including branches of insurance and reinsurance undertakings that are established outside the Union.

Removed(13) It is necessary to ensure the suitability and effectiveness of the recovery and resolution framework while avoiding unnecessary administrative burdens and costs on undertakings and authorities. The implementation of such recovery and resolution framework should therefore be proportionate to the nature, scale and complexity of the undertaking concerned, and of its activities and services. In addition, the differences between pre-emptive recovery on the one hand and resolution on the other should be taken into account. Regarding the scope of the recovery ▐planning requirements, authorities should determine, on the basis of a harmonised set of risk-based criteria, which undertakings are subject to fully-fledged planning requirements. Apart from scenarios in which an insurance or reinsurance undertaking causes a specific risk, low risk profile undertakings should not be subject to pre-emptive recovery planning on an individual basis.

Removed(14) For the same reason, authorities should, where appropriate, apply different or reduced pre-emptive recovery and resolution planning and information requirements on an undertaking-specific basis, and at a lower frequency of updates. Authorities should, when applying such simplified obligations, take into account the nature, size, complexity and substitutability of an undertaking’s business, its shareholding structure and legal form, its risk profile, its degree of interconnectedness to other regulated undertakings or to the financial system in general. Authorities should also take into account whether the failure and subsequent winding up of the insurance or reinsurance undertaking under normal insolvency proceedings would be likely to have a significant negative effect on policy holders, financial markets, other undertakings, or the wider economy. Authorities should report to EIOPA on the application of such simplified obligations on an annual basis.

Removed(15) For an orderly resolution process, and to avoid conflicts of interest, Member States should designate public administrative authorities or authorities entrusted with public administrative powers to perform the functions and tasks in relation to the recovery and resolution framework. Member States should ensure that adequate resources are allocated to those resolution authorities. Where a Member State designates a resolution authority that has other functions, adequate structural arrangements should be put in place to separate those functions from the functions related to resolution and to ensure operational independence. Such separation should not prevent the resolution function from having access to any information it requires for the exercise of its duties under the recovery and resolution framework, or for cooperation between different authorities involved in the application of the recovery and resolution framework.

Removed(16) In light of the consequences that the failure of an insurance or reinsurance undertaking may have on policy holders, the financial system and the economy of a Member State, and in light of the possible need to use public funds to deal with such failure, the Ministries of Finance or other relevant ministries in the Member States should be closely involved, at an early stage, in the process of crisis management and resolution.

Removed(17) It is necessary to deal in an efficient manner with deteriorating financial positions of insurance and reinsurance undertakings, or breaches of regulatory requirements by those undertakings, and to prevent the escalation of problems. Supervisory authorities should therefore have the power to impose preventive measures. Such preventive powers should, however, be consistent with the ladder of intervention and the supervisory powers already provided for in Directive 2009/138/EC for similar circumstances, including supervisory powers provided for in the Supervisory Review Process laid down in Article 36 of Directive 2009/138/EC. Such preventive powers should neither lead to a new pre-defined intervention trigger ahead of the Solvency Capital Requirement, laid down in Title I, Chapter VI, Section 4 of that Directive. Supervisory authorities should assess each situation individually and decide upon the need for preventive measures based on the circumstances, the situation of the undertaking and their supervisory judgment.

Removed(18) It is essential that groups, or where applicable, individual undertakings, prepare and regularly update pre-emptive recovery plans that set out actions to be taken by those groups or undertakings to restore their financial position following a significant deterioration of that position that could pose a risk to their viability. Insurance and reinsurance undertakings should therefore identify a set of quantitative and qualitative indicators that would trigger the activation of remedial actions envisaged in such pre-emptive recovery plans. Such indicators should help insurance and reinsurance undertakings to take remedial actions in the best interest of their policy holders and should not lay down new regulatory prudential requirements. Pre-emptive recovery plans covering all material legal entities within the group should be detailed and should be based on realistic assumptions that are applicable in a range of robust and severe scenarios. Those pre-emptive recovery plans should be an integral part of an undertaking’s system of governance. Existing tools may serve as an input when preparing such pre-emptive recovery plans, including the own risk and solvency assessment, contingency plans or liquidity risk management plans. The requirement to prepare a pre-emptive recovery plan should, however, be applied proportionately and should be without prejudice to the development and submission of a realistic recovery plan as required by Article 138(2) of Directive 2009/138/EC. Where relevant, the elements of the pre-emptive recovery plan could inform or serve as a basis to develop the recovery plan required by Article 138(2) of Directive 2009/138/EC.

Removed(19) It is necessary to ensure an adequate degree of preparedness for crisis situations. Ultimate parent undertakings or individual insurance or reinsurance undertakings should therefore be required to submit their pre-emptive recovery plans to supervisory authorities for a complete assessment, including the assessment of whether those plans are comprehensive and could feasibly restore an undertaking or group’s viability in a timely manner, even in periods of severe financial stress. Where an undertaking presents a pre-emptive recovery plan that is not adequate, supervisory authorities should be empowered to require that undertaking to take measures necessary to redress the material deficiencies of the plan.

Removed(20) Resolution planning is an essential component of an effective resolution process. Resolution authorities should therefore have all the information necessary to identify critical functions and ensure their continuation. Insurance and reinsurance undertakings have privileged knowledge of their own functioning and any problems arising from it, and resolution authorities should therefore draw up resolution plans on the basis of, inter alia, the information provided by the undertakings concerned. ▐

Removed(21) Low risk profile undertakings should, due to their low risk profile, not be obliged to draw up separate pre-emptive recovery plans, nor should they be subject to resolution planning on an individual basis, except where such an undertaking represents a particular risk at national or regional level.