Preamble

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2), Whereas: (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. (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 to, inter alia, the evolution of financial markets and 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 (3) 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 position 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. (3) Activities, services or operations 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 functions that need to be continued. Such activities, services or operations 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 be available to prevent failures and, where failures occur, to minimise negative repercussions by preserving the continuity of those critical functions. (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. (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 published in October 2011, and updated in October 2014, the document ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, encompassing considerations on the resolution of any insurance undertaking that could be systemically significant or critical if it fails. In June 2016, the Financial Stability Board released complementary guidance on developing effective resolution strategies and plans for systemically important insurers. In parallel, the International Association of Insurance Supervisors 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. (6) Many insurance and reinsurance undertakings are operating beyond national borders. A lack of coordination and cooperation between public authorities to prepare for 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. (7) There is currently no harmonisation of the procedures at 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 might not always be appropriate for insurance or reinsurance undertakings, as those procedures might not always ensure an adequate continuation of the critical functions for the benefit of policy holders, beneficiaries and injured parties, the real economy or financial stability as a whole. (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 or the 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 principle that no creditor should be worse off than under normal insolvency proceedings (the ‘no creditor worse off’ principle). In order to ensure that the treatment that affected shareholders, policy holders, beneficiaries, claimants and other creditors would have received if the undertaking under resolution had entered into normal insolvency proceedings is accurately reflected, all the relevant occurrences that would be triggered either by or before the opening of normal insolvency proceedings as well as all the relevant occurrences related to the opening of such proceedings, including those linked to the protection of injured parties under Directive 2009/103/EC of the European Parliament and of the Council (4) in respect of damage resulting from accidents in the case of the insolvency of an insurance undertaking, should be taken into account. (9) Building on 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. (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. (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 a barrier 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 might affect the level playing field and potentially create distortions of competition between undertakings. That barrier 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. (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. (13) In order to ensure that recovery and resolution planning and actual resolution of insurance and reinsurance undertakings that are part of financial conglomerates or insurance groups that are themselves financial conglomerates or are parts of financial conglomerates can occur smoothly, and with the objective of reducing the administrative burden, information-sharing obligations between insurance and banking resolution and supervisory authorities should be established and the banking resolution authority should be granted the status of observer in the insurance resolution college for an insurance group that is, or is part of, a financial conglomerate in accordance with Directive 2002/87/EC of the European Parliament and of the Council (5), and vice versa. (14) With the new rules introduced by this Directive, insurance and reinsurance resolution authorities, and banking resolution authorities, will each have their own framework for resolution that is adapted to the specificities of the insurance and reinsurance sectors as well as the banking sector. The timescale of a resolution in an insurance and reinsurance context is different from a resolution in a banking context. In order to prevent a bank run, the Single Resolution Board and national banking resolution authorities typically need to act swiftly. Insurance and reinsurance resolution authorities, on the other hand, often have the benefit of having more time to find the proper solutions that are most beneficial for policy holders. An event similar to a bank run is less likely to happen in the insurance and reinsurance sector, and the consequences of such an event would be different than in the banking sector. (15) Both sectoral legislative frameworks have created independent decision-making powers for the respective authorities. Consequently, the insurance and reinsurance and banking resolution authorities should act on an equal footing. For the performance of the resolution tasks, it is paramount that the insurance and reinsurance and banking resolution authorities inform one another and cooperate in good faith. The information-sharing requirements prescribed by this Directive should facilitate that cooperation. Therefore, the insurance and reinsurance and banking resolution authorities as well as the respective insurance and reinsurance and banking supervisory authorities should, without delay, exchange information considered necessary for the performance of their respective tasks. (16) In order to ensure that resolution authorities are kept informed and consulted sufficiently early in the process and in a structured way which allows them to exercise their mandate in an informed and consistent way, insurance and reinsurance and banking resolution authorities should be invited as observers to each other’s resolution colleges. This is particularly important in the context of pre-emptive recovery planning and resolution planning as well as for the assessment of whether the conditions for resolution are met and, finally, when taking resolution actions in relation to one or more entities that are part of financial conglomerates. To build on the experience gained, the Commission should review the relevant provisions of this Directive by five years after its entry into force. (17) 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 recovery on the one hand and resolution on the other, should be taken into account. Regarding the scope of the recovery and resolution planning requirements, authorities should determine, on the basis of sets of risk-based criteria, which undertakings are subject to the fully-fledged or simplified planning requirements. To foster trust in the insurance and reinsurance single market and to foster a level playing field, a minimum degree of preparedness should be achieved through laying down a minimum market coverage level for the life insurance and reinsurance market and for the non-life insurance and reinsurance market. Regarding the scope of the resolution planning requirements, authorities should determine for which undertakings it is more likely relative to other undertakings under their remit that resolution action would be in the public interest in the event of failure or which undertakings carry out critical functions. (18) 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 require updates at a lower frequency. 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 and 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 the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (EIOPA), established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council (6), on the application of such simplified obligations on an annual basis. (19) For an orderly resolution process, and to avoid conflicts of interest, Member States should appoint 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. (20) In light of the consequences that the failure of an insurance or reinsurance undertaking could 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. (21) 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 in line with the undertakings’ risk management systems and should not lay down new regulatory prudential requirements. This Directive should, therefore, neither preclude undertakings from including in their pre-emptive recovery plans nor require undertakings to include in their pre-emptive recovery plans points of deterioration of the capital position that would precede non-compliance with the Solvency Capital Requirement laid down in Title I, Chapter VI, Section 4, of Directive 2009/138/EC. 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 be taken into account 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. (22) 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. (23) 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. In order to avoid unnecessary administrative burdens, resolution authorities should primarily retrieve the necessary information from the supervisory authorities. (24) Small and non-complex undertakings should not be obliged to draw up separate pre-emptive recovery plans, nor should they be subject to resolution planning, except where such an undertaking represents a particular risk at national or regional level. (25) In order to anticipate the possible interaction of remedial and resolution measures and to enhance the crisis preparedness and the resolvability of groups, any group treatment for pre-emptive recovery and resolution planning should apply to all group entities subject to group supervision. The pre-emptive recovery and resolution plans should take into account the financial, technical and business structure of the group concerned and its degree of internal interconnectedness. (26) Group pre-emptive recovery and resolution plans should be prepared for the group as a whole and should identify measures in relation to both an ultimate parent undertaking and individual subsidiary undertakings that are part of that group. The extent to which subsidiary undertakings are considered in the group pre-emptive recovery and resolution plans should, however, be proportionate to their relevance to the group and to policy holders, the real economy and the financial system in the Member States where those subsidiary undertakings operate. The resolution authorities of the Member States where a group has subsidiary undertakings should be involved in the drawing up of any resolution plans. The authorities concerned, acting within the supervisory or resolution colleges, should make every effort to reach a joint decision on the assessment and adoption of those plans. However, adequate crisis preparedness should not be affected by an absence of a joint decision within the supervisory or resolution colleges. In such cases, each supervisory authority responsible for a subsidiary undertaking should be able to require a pre-emptive recovery plan for the subsidiary undertakings under its jurisdiction and make its own assessment of the pre-emptive recovery plan. For the same reasons, each resolution authority responsible for a subsidiary undertaking should, for the subsidiary undertakings under its jurisdiction, draw up and keep updated a resolution plan. The drawing up of individual pre-emptive recovery and resolution plans for undertakings that are a part of a group should remain exceptional, duly justified and apply the same standards that are applied to comparable undertakings in the Member State concerned. Where individual pre-emptive recovery and resolution plans for undertakings that are a part of a group are prepared, the authorities concerned should aim to achieve, to the extent possible, consistency with pre-emptive recovery and resolution plans for the rest of the group. (27) Resolution authorities that do not disagree with a joint decision can reach a joint decision among themselves on a group resolution plan, as well as on the identification of substantive impediments and, where necessary, on the assessment of the measures proposed by the ultimate parent undertaking and the measures required by the authorities in order to address or remove the impediments. (28) In order to keep all authorities concerned fully and permanently informed, supervisory authorities should transmit any pre-emptive recovery plans and any changes thereto to the resolution authorities concerned and resolution authorities should transmit any resolution plans and any changes thereto to the supervisory authorities concerned. (29) On the basis of an assessment of the resolvability of insurance or reinsurance undertakings, resolution authorities should have the power to require, either directly or indirectly through the supervisory authority, that insurance or reinsurance undertakings change their structure and organisation. Resolution authorities should also be able to take necessary but proportionate measures to reduce or remove any substantive impediments to the application of resolution tools and to ensure the resolvability of the entities concerned. Resolution authorities should assess the resolvability of insurance or reinsurance undertakings at the level of those undertakings where it is expected that, in accordance with the group resolution plan, resolution actions would be taken. The resolution authorities’ ability to request changes to the structure and organisation of an insurance or reinsurance undertaking, or to take measures to reduce or remove any material impediments to the application of resolution tools and to ensure the resolvability of the undertakings concerned, should not go beyond what is necessary to simplify the structure and operations of the insurance or reinsurance undertaking concerned in order to improve that undertaking’s resolvability. (30) The implementation of actions outlined in a pre-emptive recovery plan or a resolution plan might have effects on staff of insurance or reinsurance undertakings. Those plans should therefore contain procedures for informing and consulting employee representatives throughout the recovery and resolution processes where appropriate. Those procedures should take into account collective agreements, other arrangements provided for by social partners, and national and Union law on the involvement of trade unions and workers’ representatives in company restructuring processes. (31) Effective recovery and resolution of insurance and reinsurance undertakings or group entities operating across the Union requires cooperation among supervisory authorities and resolution authorities within colleges of supervisors and resolution colleges at all stages of the process, from the preparation of pre-emptive recovery and resolution plans to the actual resolution of an undertaking. Where authorities disagree on decisions to be taken with regard to groups and undertakings, EIOPA should, as a last resort, play a mediation role. (32) During the recovery and preventive phases, shareholders should retain full responsibility and control of the insurance or reinsurance undertaking. They should no longer retain such a responsibility once the undertaking has been put under resolution. The resolution framework should therefore provide for a timely entry into resolution, that is before an insurance or reinsurance undertaking is balance sheet or cash flow insolvent, before all equity has been fully wiped out, or before the insurance or reinsurance undertaking is unable to comply with its payment obligations as they come due. Resolution should be initiated where a supervisory authority, after having consulted the resolution authority, or a resolution authority, after having consulted the supervisory authority, determines that an insurance or reinsurance undertaking is failing or likely to fail and alternative measures would not prevent such a failure within a reasonable timeframe. An insurance or reinsurance undertaking should be considered to be failing or likely to fail in any of the following circumstances: (i) where the undertaking breaches or is likely to be in breach of the Minimum Capital Requirement laid down in Title I, Chapter VI, Section 5, of Directive 2009/138/EC and where there is no reasonable prospect of compliance being restored; (ii) where the undertaking no longer fulfils the conditions for authorisation or where the undertaking fails seriously to comply with its legal obligations under the laws and regulations to which it is subject or is likely to seriously fail to comply with its legal obligations under the laws and regulations to which it is subject in the near future in a way that would justify the withdrawal of the authorisation; (iii) where the assets of the insurance or reinsurance undertaking are or there are objective elements to support a determination that the assets of the undertaking will, in the near future, be less than its liabilities; (iv) where the insurance or reinsurance undertaking is or is likely to be unable to pay its debts or other liabilities in the near future, including payments to policy holders or beneficiaries as they fall due; or (v) where the insurance or reinsurance undertaking requires extraordinary public financial support. (33) In order to provide for a clear delineation of responsibilities between supervisory and resolution authorities, it should be specified that, once resolution action has been taken by the resolution authority, it is the resolution authority that becomes ultimately responsible for the effective implementation of such resolution action. From that moment in time, the supervisory authority should therefore refrain from adopting any measures with respect to the undertaking under resolution without the prior agreement of the resolution authority. Similarly, the resolution authority should have the power to terminate, in the context of resolution action, any measure taken by the supervisory authority where the continuation of that measure would hinder the application of resolution tools. (34) The use of resolution tools and powers might disrupt the rights of shareholders and creditors of insurance and reinsurance undertakings. In particular, the power of the resolution authorities to transfer the shares or all or part of the assets of an insurance or reinsurance undertaking to a private purchaser without the consent of shareholders affects the property rights of shareholders. In addition, the power to decide which liabilities to transfer out of a failing undertaking to ensure the continuity of services and to avoid adverse effects on policy holders, beneficiaries and injured parties, the real economy or financial stability as a whole might affect the equal treatment of creditors. Any resolution tool should therefore be applied only to those insurance or reinsurance undertakings that are failing or likely to fail, and only where it is necessary and proportionate to pursue the resolution objectives in the general interest giving due consideration to the objective of protection of the collective interest of policy holders, beneficiaries and claimants. The individual interest of a particular person or group should not prevail over the overall balance of the collective interest of policy holders, beneficiaries and claimants of the undertaking concerned. (35) In particular, resolution tools should be applied only where the insurance or reinsurance undertaking cannot be wound up under normal insolvency proceedings without unduly affecting the protection of policy holders, beneficiaries and claimants, destabilising the financial system or preventing the rapid transfer and continuation of critical functions and where there is no reasonable prospect for any alternative private solution, including any increase of capital by the existing shareholders or by any third party sufficient to restore the full viability of the entity without having effect on insurance or reinsurance claims. Insurance guarantee schemes applicable to an undertaking that meets the conditions for insolvency proceedings or resolution should be taken into account when determining if the application of resolution tools is necessary in the public interest. Any interference with the rights of shareholders and creditors that results from resolution action should be compatible with the Charter of Fundamental Rights of the European Union (the ‘Charter’). In particular, where creditors within the same class are treated differently in the context of resolution action, such distinctions should be justified in the public interest and be proportionate to the risks being addressed and should be neither directly nor indirectly discriminatory on the grounds of nationality. (36) Resolution authorities should have a certain degree of flexibility to balance the resolution objectives taking into account as appropriate the nature and circumstances of each case. (37) When pursuing the resolution objectives, resolution authorities should assess the most appropriate way for minimising the costs of resolution. Minimising reliance on extraordinary public financial support is a resolution objective, but the use of such support also constitutes a cost of resolution. Cost minimisation should not, however, be considered a separate resolution objective, but rather a principle by which resolution authorities should be guided when deciding how best to achieve the resolution objectives. (38) When applying resolution tools and exercising resolution powers, resolution authorities should take all appropriate measures to ensure that resolution action is taken in accordance with the principle that insurance and reinsurance claims are affected after shareholders and other creditors have borne their share of the losses. In addition, resolution authorities should ensure that the costs of the resolution of insurance or reinsurance undertakings are minimised and that creditors of the same class are treated in an equitable manner. (39) The write-down or conversion of capital instruments, debt instruments and other eligible liabilities should provide for an internal loss-absorption mechanism. That mechanism, combined with transfer tools aimed at maintaining continuity of insurance coverage for the benefit of policy holders, beneficiaries and injured parties, should allow for the achievement of the resolution objectives and should limit to a great extent the impact of a failure of an insurance or reinsurance undertaking on policy holders. There could be extreme cases, however, where the resolution of an insurance or reinsurance undertaking requires the intervention of specific national schemes, in particular an insurance guarantee scheme or a resolution fund, to provide for complementary loss-absorbing and restructuring resources or, as a last resort, extraordinary public financing. The safeguards necessary to protect creditors should also reflect the existence of such specific national schemes, which in turn have to comply with the Union State aid framework. The write-down or conversion tool should be applied before the use of any extraordinary public financial support. (40) Interference with property rights should not be disproportionate. Affected shareholders, policy holders, beneficiaries, claimants and other creditors of insurance and reinsurance undertakings should therefore not incur greater losses than they would have incurred if the insurance or reinsurance undertaking had been wound up at the time that the resolution decision was taken. That ‘no creditor worse off’ principle is a reflection of the fundamental right to property protected by Article 17 of the Charter. That right should be protected in the administrative resolution procedure by ensuring that any affected shareholder, policy holder, beneficiary, claimant or other creditor is not worse off than under normal insolvency proceedings. The valuation of the treatment that policy holders, beneficiaries and injured parties would have received in such a case should include any payment that policy holders, beneficiaries and injured parties would have received from insurance guarantee schemes, where applicable, and from compensation bodies under Directive 2009/103/EC. In the event of a partial transfer of assets and liabilities of an insurance or reinsurance undertaking under resolution to a private purchaser or to a bridge undertaking, the residual part of the undertaking under resolution should be wound up under normal insolvency proceedings. Shareholders and creditors who are left in the winding-up proceedings of an insurance or reinsurance undertaking should be entitled to receive in payment of, or compensation for, their claims in the winding-up proceedings not less than what they would have recovered if the whole insurance or reinsurance undertaking had been wound up under normal insolvency proceedings. (41) To protect the rights of shareholders and creditors, including policy holders, beneficiaries and claimants, it is necessary to lay down clear obligations concerning the valuation of the assets and liabilities of the undertaking under resolution and concerning the valuation of the treatment that shareholders and creditors, including policy holders, beneficiaries and claimants, would have received if the undertaking had been wound up under normal insolvency proceedings. It is therefore necessary to lay down that, before any resolution action is taken, a fair and realistic valuation of the assets and liabilities of the insurance or reinsurance undertaking is carried out. Such a valuation should be subject to a right of appeal. However, due to the nature of resolution action and its close link with the valuation, such appeal should only be possible where it is simultaneously directed against the resolution decision. In addition, it is necessary to lay down that, after resolution tools have been applied, a comparison is made between the treatment that shareholders and creditors, including policy holders, beneficiaries and claimants, have actually received and the treatment they would have received under normal insolvency proceedings. That ex post comparison should be challengeable apart from the resolution decision. Shareholders and creditors that have received less than the amount that they would have received under normal insolvency proceedings should be entitled to the payment of the difference. (42) When resolution actions are taken, policy holders could retain some or all of the benefits provided in their contracts and would not necessarily have to conclude a new insurance contract. In cases where an undertaking is wound up under normal insolvency proceedings, a change of contract could entail replacement costs for policy holders. Especially for long term insurance contracts, market conditions and the policy holders’ own characteristics as well as additional costs such as brokerage and closing fees could lead to significant costs for policy holders having to replace their contracts. When estimating such replacement costs in the context of the ‘no creditor worse off’ principle, one has to assume that the conclusion of a new insurance contract with comparable cover available in the market against prevailing market rates takes place within a reasonable time from the date of resolution action. (43) It is important that losses be recognised upon the failure of an insurance or reinsurance undertaking. The valuation of assets and liabilities of failing insurance or reinsurance undertakings should be based on fair, prudent and realistic assumptions at the moment that resolution tools are applied. The value of liabilities should, however, not be affected in the valuation by the insurance or reinsurance undertaking’s financial state. Valuations for the purpose of informing the choice and the design of resolution actions should be consistent with the applicable prudential regulatory framework, but in the context of resolution targeted modifications to the principles underlying this framework could be made, in particular where the assumption that the undertaking will pursue its business as a going concern is not met. It should be possible, in exceptional cases of urgency, that resolution authorities make a rapid valuation of the assets or the liabilities of a failing insurance or reinsurance undertaking. That valuation should be provisional and should apply until an independent valuation is carried out. EIOPA should establish a framework of principles to be used in conducting such valuations and should allow for different specific methodologies to be applied by resolution authorities and independent valuers, as appropriate. (44) When taking resolution actions, resolution authorities should take into account and follow the measures provided for in the resolution plans unless resolution authorities assess, taking into account circumstances of the case, that resolution objectives will be achieved more effectively by taking actions that are not provided for in the resolution plans. (45) Resolution tools should be designed and suitable to counter a broad set of largely unpredictable scenarios, taking into account that there could be a difference between a single insurance or reinsurance undertaking in crisis and a broader systemic crisis. Resolution tools should therefore cover each of those scenarios, including the solvent run-off of the undertaking under resolution until its termination, the sale of the business or shares of the undertaking under resolution, the setting up of a bridge undertaking, the separation of assets and liabilities from the impaired or under-performing portfolios of the failing undertaking, and the write-down or conversion of capital instruments and other eligible liabilities of the failing insurance or reinsurance undertaking. (46) In specific cases, where certain group entities provide services to an undertaking under resolution which are essential for ensuring the continuity of insurance coverage, the resolution authority should have the power to ensure that the goods and services provided by such an essential service provider continue to be provided in cases where its financial position deteriorates as a result of the failing of an insurance or reinsurance undertaking within the same group and the use of such power is necessary to preserve the continuity of insurance coverage provided by other group entities. Those powers could include exercising resolution powers and applying resolution tools to the essential service provider. (47) Where resolution tools have been used to transfer insurance portfolios to a sound entity, which could be a private sector purchaser or a bridge undertaking, the residual part of the undertaking should be liquidated within an appropriate timeframe. The length of that timeframe should be based on the need for the failing insurance or reinsurance undertaking to provide services or support to enable the private sector purchaser or bridge undertaking to carry out the activities or services acquired by virtue of that transfer. (48) Financing arrangements should be established in each Member State to compensate policy holders, beneficiaries and claimants of insurance and reinsurance undertakings authorised in that Member State. Financing arrangements should be available to satisfy claims of shareholders and other creditors under the ‘no creditor worse off’ principle if that is necessary to avoid reliance on public funds. Those claims should be calculated in accordance with the creditor hierarchy in normal insolvency proceedings in order to prevent shareholders or other creditors from being compensated before policy holders, beneficiaries or claimants are fully compensated. While directly absorbing the losses of an insurance company should be avoided, it should be possible to use such financing arrangements to finance other costs associated with the use of resolution tools as a last resort, to the extent necessary to achieve the resolution objectives and insofar as the resolution principles are fully respected. Member States should be able to decide that financing arrangements could be used to absorb losses of policy holders, beneficiaries and claimants. In such a case, the failing undertaking would exit the market and all or part of the portfolios of insurance contracts would be transferred as part of the sale-of-business tool or to a bridge undertaking, or maintained in the undertaking under resolution if it is placed in solvent run-off. In any case, shareholders should have been written down before resolution financing arrangements could be used to absorb losses. Acknowledging the diversity in insurance markets, Member States should be given some flexibility in relation to the precise arrangements of external financing as long as the availability of sufficient liquidity to guarantee compensation within a reasonable timeframe is ensured. A Member State should impose a contribution obligation only to insurance and reinsurance undertakings authorised in that Member State and to Union branches of a third-country undertaking which are established in its territory. (49) The sale-of-business tool should enable resolution authorities to effect a sale of the insurance or reinsurance undertaking or parts of its business to one or more purchasers without the consent of shareholders. When applying the sale-of-business tool, authorities should make arrangements for the marketing of that insurance or reinsurance undertaking or part of its business in an open, transparent and non-discriminatory process, while maximising the sale price as much as possible. Where, for reasons of urgency, such a process is impossible, authorities should take steps to redress detrimental effects on competition and on the internal market. (50) Any net proceeds from the transfer of assets or liabilities of the undertaking under resolution when applying the sale-of-business tool should benefit the undertaking left in the winding-up proceedings. Any net proceeds from the transfer of shares or other instruments of ownership issued by the undertaking under resolution when applying the sale-of-business tool should benefit the owners of those shares or other instruments of ownership, provided that policy holders and other creditors are compensated first, to the extent that their claims have been written down without being fully compensated. Proceeds should be calculated net of the costs arisen from the failure of the insurance or reinsurance undertaking and from the resolution process. (51) Information concerning the marketing of a failing insurance or reinsurance undertaking and negotiations with potential acquirers prior to the application of the sale-of-business tool is likely to be sensitive and might pose risks to trust in the insurance market. It is therefore important to ensure that the disclosure to the public of such information, which is required by Regulation (EU) No 596/2014 of the European Parliament and of the Council (7), can be delayed for the time necessary to plan and structure the resolution of the insurance or reinsurance undertaking concerned. (52) A bridge undertaking is an insurance or reinsurance undertaking that is wholly or partially owned by one or more public authorities or controlled by the resolution authority. The main purpose of a bridge undertaking is to ensure that critical functions continue to be provided to the policy holders of the failing insurance or reinsurance undertaking. A bridge undertaking should therefore be operated as a viable going concern and should be put back on the market as soon as conditions are appropriate, or be wound up if it is not viable. (53) The asset and liability separation tool should enable authorities to transfer assets, rights or liabilities of an undertaking under resolution to a separate vehicle in order to remove, manage and wind down such assets, rights or liabilities. To prevent an undue competitive advantage for the failing insurance or reinsurance undertaking, the asset and liability separation tool, the main purpose of which is to facilitate a portfolio transfer, should be used only in conjunction with other tools. (54) An effective resolution regime should ensure that insurance or reinsurance undertakings can be resolved in a way that minimises the negative impact of a failure on policy holders, taxpayers, the real economy and financial stability. The write-down or conversion should ensure that, before insurance and reinsurance claims are affected, shareholders and creditors of a failing insurance or reinsurance undertaking suffer losses first and bear an appropriate part of the costs arising from the failure of the insurance or reinsurance undertaking as soon as a resolution power is used. The write-down or conversion tool should thus give shareholders and creditors of insurance or reinsurance undertakings and, to a certain extent, policy holders, a stronger incentive to monitor the health of an insurance or reinsurance undertaking during normal circumstances. (55) It is important to ensure that resolution authorities have the necessary flexibility, in a range of circumstances, to place the undertaking in resolution in a solvent run-off, to transfer its assets, rights and liabilities in the best conditions for policy holders, or to allocate remaining losses. It is therefore appropriate to lay down that resolution authorities should be able to apply the write-down or conversion tool both where the objective is to resolve the failing insurance or reinsurance undertaking as an undertaking in solvent run-off, and where critical insurance services are transferred while the residual part of the insurance or reinsurance undertaking ceases to operate and is wound up. In that context, the restructuring of insurance liabilities might be warranted to ensure the continuation of a material portion of the insurance coverage and where that is deemed to be in the best interest of the policy holders. (56) Where there is a realistic prospect that the undertaking’s viability may be restored and policy holders are not suffering any losses in the resolution process, the write-down or conversion tool could be used to restore the undertaking under resolution to a going concern. In such case, the resolution through write-down or conversion should be accompanied by the replacement of the management, except where the retention of the management is appropriate and necessary for the achievement of the resolution objectives. (57) It is not appropriate to apply the write-down or conversion tool to claims insofar as they are secured, collateralised or otherwise guaranteed as such write-down or conversion could be ineffective or due to the potential negative impact of such write-down or conversion on financial stability. However, in order to ensure that the write-down or conversion tool is effective and achieves its objectives, it is desirable that it can be applied to as wide a range of the unsecured liabilities of a failing insurance or reinsurance undertaking as possible. Nevertheless, it is appropriate to exclude certain kinds of unsecured liabilities from the scope of application of the write-down or conversion tool. Thus, to ensure the continuity of critical functions, the write-down or conversion tool should not be applied to certain liabilities to employees of the failing insurance or reinsurance undertaking or to commercial claims that relate to goods and services critical to the daily functioning of the insurance or reinsurance undertaking. To honour pension entitlements and pension amounts owed or owing to pension trusts and pension trustees, the write-down or conversion tool should not be applied to a failing insurance or reinsurance undertaking’s liabilities to a pension scheme. To reduce the risk of systemic contagion, the write-down or conversion tool should neither be applied to liabilities arising from a participation in payment systems which have a remaining maturity of less than seven days, or to liabilities to insurance or reinsurance undertakings, credit institutions and investment firms, with the exception of entities that are part of the same group, with an original maturity of less than seven days. (58) The protection of the collective interest of policy holders, beneficiaries and claimants is one of the main objectives of resolution. Insurance and reinsurance claims should therefore only be subject to the application of the write-down or conversion tool as a last resort measure and resolution authorities should carefully consider the consequences of a potential write-down of insurance claims stemming from insurance contracts held by natural persons and micro, small and medium-sized enterprises. (59) Resolution authorities should be able to exclude or partially exclude liabilities in a number of circumstances where it is not possible to write down or convert such liabilities within a reasonable timeframe, where the exclusion is strictly necessary and proportionate to achieve the resolution objectives, or where the application of the write-down or conversion tool would cause a destruction in value such that losses borne by other creditors would be higher than if those liabilities were not excluded. Where those exclusions are applied, the level of write-down or conversion of other eligible liabilities may be increased to take account of such exclusions, subject to the ‘no creditor worse off’ principle being respected. At the same time, Member States should not be required to finance resolution from their general budget. (60) When applying the write-down or conversion tool to insurance contracts, resolution authorities should take into account that the compulsory minimum coverage levels under applicable law are met after the contract has been restructured. This should not prevent the resolution authority from applying the write-down or conversion tool to insurance claims which arose before the date of the resolution action. (61) As a rule, resolution authorities should apply the write-down or conversion tool in a way that respects the pari passu treatment of creditors and the statutory ranking of claims under applicable insolvency law. Losses should therefore first be absorbed by regulatory capital instruments and should be allocated to shareholders either through the cancellation or transfer of shares or through severe dilution. Where that is not sufficient, subordinated debt should be converted or written down. Senior liabilities should only be converted or written down where the subordinate debt has been converted or written down entirely. Challenging the reduction of the principal amount of the instrument or liability or its conversion resulting from the exercise of write-down or conversion powers should only be possible under the law of the Member State of the resolution authority that exercised the write-down or conversion powers. (62) Exemptions of liabilities, inter alia for payment and settlement systems, employee or trade creditors, or preferential ranking, should equally apply in third countries and the Union. To ensure that liabilities can be written down or converted in third countries, it is necessary to lay down that contractual provisions governed by the law of third countries recognise that possibility. Such contractual terms should not be required for liabilities exempted from the application of the write-down or conversion tool, or where the law of the third country or a binding agreement concluded with that third country allow the resolution authority of the Member State concerned to apply the write-down or conversion tool. (63) Shareholders and creditors should contribute, to the extent necessary, to the loss allocation mechanism of a failing undertaking. Therefore, Member States should ensure that Tier 1, Tier 2 and Tier 3 capital instruments fully absorb losses at the point of non-viability of the issuing insurance or reinsurance undertaking. Accordingly, resolution authorities should be required to write down those instruments in full, or to convert them, where applicable, to Tier 1 instruments, at the point of non-viability and before any resolution action is taken. For that purpose, the point of non-viability should be understood as either the point at which the resolution authority concerned determines that the insurance or reinsurance undertaking meets the conditions for resolution, or the point at which the resolution authority concerned decides that the insurance or reinsurance undertaking would cease to be viable if those capital instruments were not written down or converted. Those requirements should be recognised in the terms governing the instrument, and in any prospectus or offering documents published or provided in connection with the instruments. (64) In order to ensure effective execution of resolution, resolution authorities should have all the necessary legal powers that, in different combinations, can be exercised when applying resolution tools. Those legal powers should include the power to transfer shares in, or assets, rights or liabilities of, a failing insurance or reinsurance undertaking to another entity, including another undertaking or a bridge undertaking, the power to write down or cancel shares, or write-down or convert liabilities of a failing insurance or reinsurance undertaking, the power to replace the management and the power to impose a temporary moratorium on the payment of claims. Ancillary powers are needed, including the power to require continuity of essential services from other parts of a group. (65) It is not necessary to prescribe the exact means through which the resolution authorities should intervene in the failing insurance or reinsurance undertaking. Resolution authorities should have the choice between taking control through a direct intervention in the insurance or reinsurance undertaking or through executive order. They should decide according to the circumstances of the case. (66) It is necessary to lay down procedural requirements to ensure that resolution actions are properly notified and made public. Information obtained by resolution authorities and their professional advisers during the resolution process is, however, likely to be sensitive and should therefore be subject to an effective confidentiality regime before the resolution decision is made public. Any information provided in respect of a decision before it is taken, be it on whether the conditions for resolution are satisfied, on the use of a specific tool or of any action during the proceedings, must be presumed to have effects on the public and private interests concerned by the action. It is therefore necessary to ensure that there are appropriate mechanisms for maintaining the confidentiality of such information, including on the content and details of recovery and resolution plans and the result of any assessment carried out in that context. (67) Exchanges of information between resolution authorities and tax authorities should not be prevented. Such exchanges should be in line with national law, and, where the information originates in another Member State, it should only be exchanged with the express consent of the relevant authority from which the information originates. (68) Resolution authorities should have ancillary powers to ensure the effectiveness of the transfer of shares or debt instruments and assets, rights and liabilities to a third-party purchaser or a bridge undertaking. In particular, to facilitate a transfer of insurance or reinsurance claims without affecting the overall risk profile of the related portfolio and of the associated technical provisions and capital requirements, the economic benefits provided by reinsurance agreements should be preserved. Resolution authorities should therefore have the ability to transfer insurance or reinsurance claims together with their corresponding reinsurance rights. That ability should also include the power to remove third parties’ rights from the transferred instruments or assets, the power to enforce contracts and the power to provide for the continuity of arrangements vis-à-vis the recipient of the transferred assets and shares. The right of a party to terminate a contract with an undertaking under resolution, or a group entity thereof, for reasons other than the resolution of the failing insurance or reinsurance undertaking should also remain unaffected. In addition, resolution authorities should have the ancillary power to require the residual insurance or reinsurance undertaking that is being wound up under normal insolvency proceedings to provide services that are necessary to enable the undertaking to which assets or shares have been transferred by virtue of the application of the sale-of-business tool or the bridge undertaking tool to operate its business. (69) According to Article 47 of the Charter, everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal. The decisions taken by resolution authorities should therefore be subject to a right of appeal. (70) Crisis management measures taken by resolution authorities may require complex economic assessments and a large margin of discretion. Resolution authorities are specifically equipped with the expertise needed for making such assessments and for determining the appropriate use of the margin of discretion. It is therefore important to ensure that the complex economic assessments made by resolution authorities in that context are used as a basis by national courts when reviewing the crisis management measures concerned. However, the complex nature of those assessments should not prevent national courts from examining whether the evidence relied on by the resolution authority is factually accurate, reliable and consistent, whether that evidence contains all relevant information which should be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn therefrom. (71) In order to deal with situations of urgency, it is necessary to provide that the lodging of any appeal does not result in automatic suspension of the effects of the challenged decision and that the decision of the resolution authority is immediately enforceable with a presumption that its suspension would be against the public interest. (72) It is necessary to protect third parties that have acquired assets, rights and liabilities of the undertaking under resolution in good faith by virtue of the exercise of resolution powers by the authorities. It is equally necessary to ensure the stability of the financial markets. A right of appeal against a resolution decision should therefore not affect any subsequent administrative act or transaction concluded on the basis of an annulled decision. In such cases, remedies for a wrongful decision should be limited to the award of compensation for the damages suffered by the affected persons. (73) Crisis management measures may be required to be taken urgently due to serious financial stability risks in the Member State concerned and the Union. Any procedure under national law relating to the application for ex ante judicial approval of a crisis management measure and a court’s consideration of such an application should therefore be swift. Member States should ensure that the authority concerned can take its decision immediately after a court has given its approval. That possibility should be without prejudice to the right of interested parties to make an application to the court to set aside the decision. However, such possibility should only be granted for a limited period after the resolution authority has taken the crisis management measure in order not to unduly delay the application of the resolution decision. (74) Efficient resolution and the need to avoid conflicts of jurisdiction require that no normal insolvency proceedings for a failing insurance or reinsurance undertaking be opened or continued while a resolution authority is exercising its resolution powers or applying resolution tools, except at the initiative of, or with the consent of, the resolution authority. It is therefore necessary to lay down that certain contractual obligations can be suspended for a limited period to enable resolution authorities to apply the resolution tools. That possibility should not, however, apply to obligations in relation to systems designated by a Member State as referred to in Directive 98/26/EC of the European Parliament and of the Council (8), including central counterparties. Directive 98/26/EC reduces the risk associated with participation in payment and securities settlement systems, in particular by reducing disruption in the event of the insolvency of a participant in such a system. It is necessary to ensure that those protections continue to apply in crisis situations and that appropriate certainty for operators of payment and securities systems and other market participants is maintained. A crisis prevention measure or a crisis management measure should therefore not, per se, be deemed to constitute insolvency proceedings within the meaning of Directive 98/26/EC, provided that the substantive obligations under the contracts concerned continue to be performed. (75) It is necessary to ensure that resolution authorities, when transferring assets and liabilities to a private sector purchaser or a bridge undertaking, have adequate time to identify contracts that need to be transferred. It should therefore be possible for resolution authorities to restrict counterparties’ rights to close out, accelerate or otherwise terminate financial contracts before the transfer is made. Such restrictions should allow resolution authorities to obtain a true picture of the balance sheet of the failing insurance or reinsurance undertaking without the changes in value and scope that an extensive exercise of termination rights would entail, and should help to avoid creating market instability. Interference with the contractual rights of counterparties should however be restricted to the minimum extent necessary. Any restrictions on termination rights imposed by resolution authorities should therefore only apply in relation to crisis management measures or events directly linked to the application of such measures. Rights to terminate arising from any other default, including failure to pay or deliver margin, should thus remain. (76) It is necessary to preserve legitimate capital market arrangements in the event of a transfer of some, but not all, of the assets, rights and liabilities of a failing insurance or reinsurance undertaking. It is therefore appropriate to lay down safeguards to prevent the splitting of linked liabilities or linked rights and contracts, including contracts with the same counterparty covered by security arrangements, title transfer financial collateral arrangements, set-off arrangements, close out netting agreements, and structured finance arrangements. Where such safeguards apply, resolution authorities should be bound to transfer all linked contracts within a protected arrangement, or leave them all with the residual failing insurance or reinsurance undertaking. Those safeguards should ensure that the regulatory capital treatment of exposures subject to a netting agreement for the purposes of Directive 2009/138/EC is not affected. (77) In order to provide financial stability to the insurance or reinsurance undertaking a moratorium on surrender rights of policy holders should be introduced. Such a moratorium and the ensuing financial stability for the undertaking concerned should provide the resolution authorities with sufficient time to valuate those undertakings and to assess which resolution tools should be applied. Such a moratorium should also ensure equal treatment of policy holders, and thus avoid potential adverse financial impacts on policy holders that would not be among the first to surrender their policy. Because one of the objectives of resolution is the continuation of insurance cover, policy holders should continue to make any obligatory payments under the insurance or reinsurance contracts concerned, including in the case of annuities. (78) Ensuring that resolution authorities have the same resolution tools and powers at their disposal will facilitate coordinated action in the event of a failure of a cross-border group. Further action, however, is necessary to promote cooperation and prevent fragmented national responses. To agree to a group resolution scheme when resolving group entities, resolution authorities should therefore be required to consult each other and cooperate in resolution colleges. To provide for a forum for discussion and reaching such agreement, resolution colleges should be established around the core of the existing colleges of supervisors through the inclusion of resolution authorities and the involvement of competent ministries, EIOPA and, where appropriate, authorities responsible for the insurance guarantee schemes. Resolution colleges should not be decision-making bodies, but platforms facilitating decision-making by national authorities, while it should be for the national authorities concerned to take the joint decisions. (79) Following the regulatory developments in response to the global financial crisis, the experience gained since that crisis, and the application of this Directive, the Commission, after having consulted EIOPA, should submit a report to the European Parliament and to the Council assessing the appropriateness of minimum common standards for insurance guarantee schemes within the Union. That report should at least: assess the state of play of insurance guarantee schemes in Member States (coverage level, types of insurance covered, triggers); discuss policy options, including the different policy options, such as using insurance guarantee schemes to continue or to liquidate insurance policies, thereby taking due account of the differences in insurance products in various Member States; assess the necessity of introducing and, where appropriate, outline the steps necessary to introduce a minimum baseline for insurance guarantee schemes across the Union. The report should be accompanied by a legislative proposal where appropriate. (80) Resolution of cross-border groups should strike a balance between, on the one hand, the need for procedures that take into account the criticality of the situation and allow for efficient, fair and timely solutions for the group as a whole and, on the other hand, the necessity to protect policy holders, the real economy and financial stability in all the Member States where the group operates. The different resolution authorities should therefore share their views in the resolution college and any resolution actions proposed by the group-level resolution authority should be prepared and discussed among different resolution authorities in the context of the group resolution plans. In order to facilitate swift and joint decisions wherever possible, resolution colleges should also take into account the views of the resolution authorities of all the Member States in which the group is active. (81) Resolution actions by the group-level resolution authority should always take into account their impact on policy holders, the real economy and financial stability in the Member States where the group operates. Resolution authorities of the Member State in which a subsidiary undertaking is established should therefore be able to object, as a last resort and in duly justified cases, to the decisions of the group-level resolution authority where those resolution authorities are of the opinion that the resolution actions and measures are not appropriate, either because of the need to protect policy holders, the real economy and financial stability in that Member State, or because of obligations that comparable undertakings in that Member States are subject to. (82) Group resolution schemes should facilitate coordinated resolution, which is more likely to deliver the best result for all undertakings of a group. Group-level resolution authorities should therefore propose group resolution schemes and submit those schemes to the resolution college. Resolution authorities that disagree with a group resolution scheme or decide to take independent resolution action should explain to the group-level resolution authority and other resolution authorities covered by the group resolution scheme the reasons for their disagreement and notify those reasons, together with details of any independent resolution action they intend to take. Any resolution authority that decides to depart from the group resolution scheme should duly consider the potential impact of such departure on policy holders, the real economy and financial stability in the Member States where the other resolution authorities are located and the potential effects of such departure on other parts of the group. (83) To ensure coordinated action at group level, resolution authorities should be invited to apply, within a group resolution scheme, the same tool to entities belonging to the group that meet the conditions for resolution. Group-level resolution authorities should thus have the power to apply the bridge undertaking tool at group level in order to stabilise a group as a whole and to transfer ownership of subsidiary undertakings to the bridge undertaking with a view to the onward sale of such subsidiary undertakings, either as a package or individually, when market conditions are appropriate. In addition, the group-level resolution authority should have the power to apply the write-down or conversion tool at parent level. (84) Effective resolution of internationally active insurance and reinsurance undertakings and groups requires cooperation between Member States and third-country resolution authorities. For that purpose, where it is justified by the situation at hand, EIOPA should be empowered to develop and enter into non-binding framework cooperation arrangements with authorities of third countries in accordance with Article 33 of Regulation (EU) No 1094/2010. For the same reason, national authorities should be permitted to conclude bilateral arrangements with third-country authorities in line with EIOPA’s framework cooperation agreements. The development of such bilateral arrangements should ensure effective planning, decision-making and coordination in respect of such internationally active insurance and reinsurance undertakings. In order to create a level playing field, such bilateral arrangements should be reciprocal, with resolution authorities recognising and enforcing each other’s proceedings, unless any exception that allows for rejection of recognition of third-country resolution proceedings applies. (85) Cooperation between resolution authorities should take place both with regard to subsidiary undertakings of Union or third-country groups as with regard to branches of Union or third-country insurance or reinsurance undertakings. Subsidiary undertakings of third-country groups are undertakings established in the Union and are therefore fully subject to Union law, including the application of any resolution tools. It is necessary, however, that Member States retain the right to act in relation to branches of insurance and reinsurance undertakings having their head office in third countries, where the recognition and application of third-country resolution proceedings relating to a branch would endanger the real economy or financial stability in the Union, or where Union policy holders would not receive equal treatment with third-country policy holders. In those circumstances, Member States should have the right, after having consulted their resolution authorities, to refuse recognition of third-country resolution proceedings. (86) The implementation of this Directive should not prevent the national insurance guarantee schemes from coexisting with the recovery and resolution framework, regardless of the source of financing of the national insurance guarantee schemes. The use of resolution tools and powers to an insurance or reinsurance undertaking should not prevent policy holders, beneficiaries and other claimants from being compensated through these national insurance guarantee schemes. (87) EIOPA should promote convergence of the practices of resolution authorities through guidelines that are issued in accordance with Article 16 of Regulation (EU) No 1094/2010. More in particular, EIOPA should specify all of the following: (a) further details on the criteria concerning the application of simplified obligations for certain undertakings; (b) a range of scenarios for pre-emptive recovery plans and a minimum list of qualitative and quantitative indicators; (c) the criteria for the identification of critical functions; (d) further matters and criteria for the assessment of resolvability; (e) the details on the measures to address or remove impediments to resolvability and the circumstances in which each measure may be applied; and (f) how information should be provided in summary or collective form for the purposes of confidentiality requirements. (88) Technical standards in financial services should facilitate consistent harmonisation and adequate protection of policy holders, investors and consumers across the Union. As a body with highly specialised expertise, it would be efficient and appropriate to entrust EIOPA with the development of draft regulatory and implementing technical standards which do not involve policy choices, for submission to the Commission. (89) The Commission should, where provided for in this Directive, adopt, by means of delegated acts pursuant to Article 290 TFEU, draft regulatory technical standards developed by EIOPA in accordance with Articles 10 to 14 of Regulation (EU) No 1094/2010 to specify the following elements: (a) the criteria to subject an undertaking to pre-emptive recovery planning, the methods to be used when determining market shares for the purposes of recovery planning and the information to be contained in the pre-emptive recovery plans; (b) the content of resolution plans and the content of group resolution plans; (c) different elements on valuation, including the circumstances under which a person is deemed to be independent for the purposes of carrying out a valuation, the methodologies for assessing the value of the assets and liabilities in the context of resolution, the separation of different valuations, a methodology for calculating the buffer for additional losses to be included in provisional valuations, methodologies and principles on the valuation of liabilities arising from derivatives and the methodology for carrying out the valuation of difference in treatment; (d) the contents of the contractual terms to be included in financial contracts governed by third-country law; (e) the operational functioning of resolution colleges. The Commission should, where provided for in this Directive, adopt draft implementing technical standards developed by EIOPA by means of implementing acts pursuant to Article 291 TFEU, in accordance with Article 15 of Regulation (EU) No 1094/2010 to specify the procedures, content and a minimum set of standard forms and templates for the provision of information for the purposes of resolution plans and cooperation from the insurance or reinsurance undertaking. (90) Directive 2004/25/EC of the European Parliament and of the Council (9), Directive 2007/36/EC of the European Parliament and of the Council (10) and Directive (EU) 2017/1132 of the European Parliament and of the Council (11), contain rules on the protection of shareholders and creditors of undertakings that fall within the scope of those Directives. In a situation where resolution authorities need to act rapidly, those rules might hinder effective resolution action and application of resolution tools and powers by resolution authorities. Derogations under Directive 2014/59/EU of the European Parliament and of the Council (12) and Regulation (EU) 2021/23 of the European Parliament and of the Council (13) should therefore be extended to actions taken in the context of the resolution of insurance and reinsurance undertakings. In order to guarantee the maximum degree of legal certainty for stakeholders, such derogations should be set out clearly, should be narrow, and should only be used in the public interest and when resolution triggers are met. (91) To provide adequate information sharing and access to all concerned authorities, it is necessary to ensure that resolution authorities are represented in all relevant fora and that EIOPA benefits from the expertise necessary to carry out the tasks related to the recovery and resolution of insurance and reinsurance undertakings. Therefore, Regulation (EU) No 1094/2010 should be amended to designate resolution authorities as competent authorities as referred to in that Regulation. Such assimilation between resolution authorities and competent authorities is consistent with the functions attributed to EIOPA pursuant to Article 25 of Regulation (EU) No 1094/2010 to contribute and participate actively in the development and coordination of recovery and resolution plans. (92) It is necessary to ensure that insurance and reinsurance undertakings, those who effectively control their business, and their administrative, management or supervisory body comply with their obligations in relation to the resolution of such undertakings. It is equally necessary to ensure that those undertakings, those who effectively control their business, and their administrative, management or supervisory body are subject to similar treatment across the Union. Member States should therefore be required to provide for administrative sanctions and other administrative measures which are effective, proportionate and dissuasive. Such administrative sanctions and other administrative measures should satisfy certain essential requirements in relation to addressees, criteria to be taken into account when applying an administrative sanction or other administrative measure, publication of administrative sanctions or other administrative measures, key penalising powers and levels of administrative fines. Subject to strict professional secrecy, EIOPA should maintain a central database of all administrative sanctions or other administrative measures and information on the appeals reported to it by supervisory authorities and resolution authorities. (93) Member States should not be required to lay down rules for administrative sanctions or other administrative measures for infringements of this Directive which are subject to national criminal law. However, the maintenance of criminal sanctions rather than administrative sanctions or other administrative measures for infringements should not reduce or otherwise affect the ability of resolution authorities and supervisory authorities to cooperate, access and exchange information in a timely manner with resolution authorities and supervisory authorities in other Member States, including after any referral of the infringements concerned to the competent judicial authorities for prosecution. (94) Since the objective of this Directive, namely the harmonisation of the rules and processes for the resolution of insurance and reinsurance undertakings, cannot be sufficiently achieved by the Member States but can rather, by reason of the effects of a failure of any undertaking in the whole Union, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (95) When taking decisions or actions under this Directive, supervisory authorities and resolution authorities should always have due regard to the impact of their decisions and actions on policy holders, the real economy and financial stability in other Member States and should give consideration to the significance of any subsidiary undertaking or of cross-border activities for policy holders, the financial sector and the economy of the Member State where such a subsidiary undertaking is established or the activities are carried out, even in cases where the subsidiary undertaking or the cross-border activities concerned are of lesser importance for the group. (96) By five years after the entry into force of this Directive, the Commission should, building on the experience gained and after having consulted EIOPA, evaluate and report to the European Parliament and to the Council in more detail and focusing on selected aspects of the application of this Directive, HAVE ADOPTED THIS DIRECTIVE:

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Source: EUR-Lex (Cellar) · retrieved 2026-10-14 · Text as adopted (Official Journal); later amendments are not incorporated in this text.