UK Insurer Resolution Regime – HMT response to consultation published

On 2 August 2023 HM Treasury published the response to its January 2023 consultation on a new Insurer Resolution Regime (IRR).

In its consultation HM Treasury set out its proposal for legislative requirements that would give regulators additional tools and powers to manage the failure of (re)insurers in an orderly manner (to "resolve" an entity) where such a failure would have a wider impact on the financial system and policyholders. Importantly, the IRR would sit on top of existing corporate and (re)insurer specific insolvency arrangements which were recently updated as part of the Financial Services and Markets Act 2023. See our earlier post on the consultation here.

The consultation response addresses many of the points raised by the industry and commits to provide further guidance on the points that remain unaddressed.

As expected, responses to the consultation were largely supportive of the proposals, and therefore HM Treasury plans to legislate "when parliamentary time allows". HM Treasury recognises that a lead-in time will be required for firms to implement any new requirements and acknowledges that the majority of respondents suggested at least a 12-month period.

However, a number of the proposals in the consultation required further clarification or further consideration in light of the specificities of the (re)insurance sector, in particular:

1. how the IRR resolution conditions and the write-down power under section 377 FSMA interact;
2. whether contractual recognition of bail-in would be required;
3. how compensation in respect of the No Creditor Worse Off (NCWO) safeguard would work in practice; and
4. whether there would be any duplication with existing resolution planning requirements under the current UK regulatory regime.

The table below provides a high-level overview of HM Treasury's responses to some of the key areas of uncertainty.

It should be noted that the IRR is separate from but similar in certain respects to the EU's proposal for an Insurance Recovery and Resolution Directive.

Key contacts