Resolution means resolving an insurer in trouble in a careful and controlled manner. We thus prevent the failing insurer from pulling down other financial institutions or from having to be saved by the government with taxpayer money. Resolution also ensures that insurance policies of customers are continued. They remain insured. It does not mean, however, that the insurer itself will continue to exist. We may also, for example, transfer insurance policies to another insurer.
When does an insurer go into resolution?
We use our resolution tools if the adverse impact of an insurer's bankruptcy is considered to be too substantial for the financial markets, the economy and society. In assessing the impact, we consider the following aspects:
- size of the insurer
- number of policyholders
- type of insurance product
- interconnectedness of the insurer with the financial system
- economic situation at the time
In practice, this means that most insurers will not qualify for resolution, but will be liquidated in bankruptcy proceedings.
Tools and planning
We determine beforehand what action we will take should an insurer run into trouble. For this purpose, a resolution plan is drafted. To resolve an insurer, we have multiple resolution tools at our disposal, such as a bail-in by shareholders and creditors or the sale of parts of the insurer's business.
An insurer's deficits are for the account of shareholders and creditors. In the case of large deficits, policyholders may also lose some of the value of their insurance policies. Obviously, we will do our best to prevent this from happening. The administrative expenses involved in resolution will be charged to the insurance sector as a whole afterwards. These may include costs for engaging the services of independent experts.
From supervision to resolution
As a supervisory authority we will do our best to prevent an insurer from ending up in trouble. However, if this does happen, we will make every effort to try and aim for recovery. Only if recovery is no longer a valid option and a private solution – such as a sale or capital contribution – is not feasible either, may we proceed to effect resolution.
Our main duties and powers in the field of resolution are laid down in the Act on the recovery and resolution of insurers (Wet herstel en afwikkeling van verzekeraars), which took effect on 1 January 2019. Unlike the resolution act for banks, this act is not based on European legislation. This means that the act only applies to insurers and insurance groups in the Netherlands, and we can only resolve those.