IRRD: From Concept to Execution

The Insurance Recovery and Resolution Directive (IRRD) has crossed the line from proposal to law. It entered into force on 28 January 2025. Member States must transpose by 29 January 2027, with national rules applying from 30 January 2027. That timetable defines the window in which boards need to translate planning into actual operational readiness.

At its core, IRRD is straightforward: improve preparedness, make early intervention credible, and protect policyholders while preserving financial stability. It does this by imposing pre emptive recovery planning, equipping resolution authorities with a usable toolbox, and tightening cross border coordination so that “weekend” decisions aren’t left to improvisation. This is not entirely alien to insurers used to Solvency II, but the expectation now is that planning extends beyond prudential resilience and can be executed effectively in a resolution setting.

Lessons from BRRD – without turning insurers into banks

IRRD borrows the architecture that made bank resolution executable (plans, colleges, valuation, ‘No Creditor Worse Off’ (NCWO), transfer tools etc…) but does not copy paste MREL (minimum requirement for own funds and eligible liabilities). Insurance liabilities behave differently; run off often beats “weekend rescues”; and policyholder continuity dominates. Meanwhile, NCWO acts as the fairness backstop, and direct insurance claims benefit from super priority in normal insolvency.

Resolution tools mirror the banking world but are adapted for insurance: sale of business, bridge undertaking, asset and liability separation, solvent run off, and a calibrated write down and/or convert (bail in) power. Unlike the Banking Recovery and Resolution Directive, bail in here is not a stand alone recapitalisation device; it is used to facilitate a solvent run off or a transfer (sale, bridge, or asset and liability vehicle).

What IRRD actually changes

First, the planning mindset. Recovery plans that read well but cannot be executed at speed will fall short of expectations. IRRD expects clarity on critical functions, loss absorbing capacity, and feasible options under stress, it is a governance exercise before a documentation exercise.

Second, the underlying information framework. Resolution authorities will need a standard pack at short notice. EIOPA has already consulted on ITS for resolution reporting – even before those are final, boards should assume that what cannot be produced quickly (and attested) may as well not exist in a crisis.

Third, scope, sequencing and proportionality. Supervisors will drive recovery plans across at least sixty percent of the national market and resolution plans for entities where public interest resolution is likelier, covering at least forty percent; both refresh every two years or on material change, with simplified obligations possible for smaller and less complex undertakings.

Fourth, preventive powers before resolution. Supervisors gain a sharper ladder of intervention: they can activate and update recovery plans and suspend variable pay, dividends and buy backs when solvency weakens – practical levers to conserve resources while options remain open.

Fifth, triggers and public interest. Resolution can begin when the entity is failing or likely to fail – for example, an MCR (minimal capital requirement) breach with no realistic cure, assets less than liabilities, inability to pay liabilities when due, serious authorisation breaches, or a need for extraordinary public financial support – with no other measures able to restore viability in time and where action is in the public interest.

Sixth, the contract clauses under non EU law that legal teams will care about. Two programmes now need planning: (i) bail in recognition in many non EU law contracts for liabilities that could be bailed in (authorities may ask for legal opinions); and (ii) resolution stay recognition in non EU law financial contracts for new or materially amended obligations.

Seventh, the coordination framework. Expect resolution colleges for groups and explicit information sharing across insurance and banking colleges for financial conglomerates – effective coordination is essential in cross border situations.

Eighth, financing and NCWO. Member States must set up industry funded financing arrangements – at least to cover NCWO compensation, with discretion to cover certain resolution costs.

Finally, EIOPA deliverables. Expect a staggered pipeline: EIOPA is expected to deliver a comprehensive suite of regulatory and implementing technical standards and guidelines spanning all core aspects of recovery and resolution planning. Some detail may therefore land after national regimes start to apply – plan for reasonable uncertainty.

Malta – in focus

The Malta Financial Services Authority (MFSA) has already set the tone. At the MFSA Insurance Conference 2026 – “Solvency II Review and IRRD: Embedding Proportionality and Resilience” – the MFSA put IRRD on the same stage as the Solvency II Review.

In fact, the MFSA has given an initial indication of its thinking on resolution funding arrangements, confirming that Malta will adopt a hybrid model. These arrangements will be available to address NCWO compensation and to ensure that the broader resolution objectives are upheld. Funding is expected to be linked to gross written premiums (GWPs) for general insurers and to the higher of GWPs or technical provisions for life insurers, with both ex-ante and ex-post contributions forming part of the framework. The ex-ante element is to be built up over a five year period, with the first collection scheduled for June 2028, based on 2027 data.

Expect institutional continuity, too. The MFSA’s Resolution Function, historically bank focused, already carries the planning muscle memory – pathways, tools and coordination with European bodies – that will matter as insurance resolution planning matures locally.

The way forward

IRRD doesn’t demand a revolution – it calls for preparedness. What matters now is ensuring that recovery plans work in practice and that, where failure does occur, it can be managed in a controlled and orderly manner. The focus for 2026 should be on governance, information readiness and clear decision making frameworks. If these foundations are in place, insurers should be well positioned to refine the remaining elements ahead of the 2027 application date.