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Resolution of insurers
De Nederlandsche Bank (DNB) is responsible for the careful and controlled winding-up of an insurer that is failing or likely to fail. This is known as “resolution”.
When does an insurer go into resolution?
As a rule, an insurer can go bankrupt, just like any other business. That is, unless the impact on the economy, society or policyholders is too great. An insurer's failure may have a negative impact on the entire insurance sector, or the government may be forced to step in, spending taxpayers’ money. If any of these risks looms, we take action in our capacity as the national resolution authority, taking the insurer into resolution. We then arrange for a bail-in or sell the insurance policies to a financially sound party. This guarantees that insurance policies remain valid and customers remain insured.
The last resort
Resolution is the last resort. Each insurer is subject to our continuous supervision. Nevertheless, an insurer can get into difficulty. We will then seek to bring about its recovery, for example by ensuring that it recapitalizes to the required level. If the insurer is unable to do so on its own, it will be wound up either by a liquidator in bankruptcy proceedings or by DNB as part of resolution.
When does an insurer go into resolution?
We opt for resolution only if the bankruptcy of an insurer would have undue social and financial impact. In determining the scope of this impact we consider various aspects, including:
- the insurer's size
- the number of policyholders
- the type of insurance offered
- the insurer's interconnectedness with the financial system
In practice, this means that most insurers will not qualify for resolution, either due to their limited size or because they offer products which the consumer can easily get from another insurer. In these cases, we file for bankruptcy. Generally speaking, resolution is an option mainly in the case of larger insurers with long-term insurance liabilities.
Preparation and tools
Resolution calls for careful preparation. This is why we draw up resolution plans. They set out what we will do if an insurer gets into difficulty. To wind up an insurer, we have four resolution tools at our disposal: bail-in, sale of business, a bridge institution and an asset and liability management vehicle.
In the event of resolution, an insurer's deficits are largely for the account of shareholders and creditors. In the event 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. Unlike in the case of banks, there is no guarantee scheme for customers of failing insurers, but a policyholder will never be worse off as a result of resolution than as a result of bankruptcy.
The administrative expenses involved in resolution are paid by the insurance sector as a whole. These may include costs for engaging the services of independent experts. We also pass the costs of resolution planning on to the insurance sector.
Our main task and mandate 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 came into force on 1 January 2019. Unlike bank resolution, which is based on European legislation implemented in all EU Member States, resolution of insurers is a national matter. We advocate a minimum level of harmonisation in this area at a European level. This means the EU would prescribe a base-standard below which national protection must not go.
Within DNB, our resolution task is separate from supervision, because resolution might pursue different objectives than supervision. This is why Resolution is a separate division with its own budget. One member of our Governing Board, Nicole Stolk, is responsible for resolution. She has no direct responsibility for insurance supervision.
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