Getting ready for the IRRD – what insurers and reinsurers need to know before 2027
Scope and aim of the IRRD
The IRRD is modelled after the earlier established Bank Recovery and Resolution Directive (BRRD), which already applies to banks and certain investment firms. The IRRD is tailored to the insurance sector and applies to EU-based insurance and reinsurance undertakings that are subject to Directive 2009/138/EC (Solvency II) and their EU-based parent entities. Further, it applies to insurance holding companies and mixed financial holding companies based in the EU, as well as branches of insurance and reinsurance undertakings that are established in a third country and meet specific criteria.
The main purposes of the IRRD are to ensure that:
- Insurance and reinsurance undertakings can be managed effectively in times of financial distress or failure;
- The continuity of critical insurance functions is preserved for policyholders, beneficiaries, and injured parties;
- Negative impacts on the economy, financial stability, and public finances are minimised, including reducing reliance on public bailouts, and thereby minimising the costs for taxpayers;
- Cross-border cooperation and consistent handling of distressed insurers and reinsurers across Member States are ensured.
The implementation process
Member States must implement the IRRD by 29 January 2027, with the new requirements applying from 30 January 2027. The IRRD does not allow for a transition period, and full compliance is therefore required from 30 January 2027.
As the IRRD is a minimum harmonisation directive, Member States are permitted to adopt or maintain stricter national rules, provided they are consistent with EU law. However, the Danish Government has indicated that it aims for the Danish implementation to be closely aligned with the IRRD, and with a particular focus on limiting unnecessary administrative burdens. The provisions of the IRRD are expected to be implemented through a combination of a new standalone act on the recovery and resolution of insurance undertakings, amendments to the Danish Insurance Business Act, and amendments to the Danish Act on the Guarantee Fund for Non-life Insurance Companies. As part of this process, existing rules, particularly those relating to resolution, are expected to be adjusted to ensure consistency and clarity in light of the IRRD framework. A legislative proposal is expected to be presented in October 2026, with a public consultation anticipated in mid-2026. While we now have a functioning government, the parliamentary standstill created by the government negotiations has created uncertainty as to whether a bill will be introduced in accordance with the currently anticipated timetable.
As part of the national implementation, each Member State must establish national resolution authorities responsible for planning and executing resolution measures. In Denmark, it has already been decided that Financial Stability (in Danish "Finansiel Stabilitet") and the Danish Financial Supervisory Authority (in Danish "Finanstilsynet") will share the role of resolution authority. Entities in scope of the IRRD will need to engage with these authorities to understand expectations and prepare to support resolution planning and to draft pre-emptive recovery plans by setting up internal functions responsible for IRRD compliance.
In parallel with the national implementation, the European Insurance and Occupational Pensions Authority ("EIOPA") is mandated under the IRRD to develop a set of technical standards; Regulatory Technical Standards ("RTS") and Implementing Technical Standards ("ITS") and guidelines to assist authorities in implementing and applying the IRRD effectively.
In February 2026, EIOPA published the first package of six key instruments, supporting the practical implementation of the IRRD. The package includes guidelines and RTS covering different aspects of the framework, such as pre-emptive recovery plans, resolution plans and resolvability of insurance and reinsurance undertakings and groups. In April 2026, another set of technical standards (one RTS and one ITS) was published concerning the functioning of resolution colleges and reporting requirements for resolution plans under the IRRD.
These first packages of guidelines and technical standards constitute only one part of the overall implementation of the IRRD, which will continue in the run-up to the IRRD's deadline for implementation in 2027.
Key elements in the IRRD and its effects on the insurance sector
Internal pre-emptive recovery plans
Once implemented, insurers, reinsurers, and groups in scope of the IRRD will need to prepare and maintain internal pre-emptive recovery plans as part of their ongoing risk management.
The obligation to prepare pre-emptive recovery plans applies to insurers and reinsurers that are within the scope of the IRRD based on criteria like size, risk profile, and cross-border activity, ensuring at least 60% coverage by calculating their combined market share within each Member State. The calculation is carried out separately for the life and non-life insurance and reinsurance markets. The undertakings in scope must, in aggregate, represent at least 60% of each market.
Under the current Danish Insurance Business Act, insurers and reinsurers are already required to prepare a recovery plan in the event of the non-compliance or risk of non-compliance when they no longer comply with the solvency capital requirement or the minimum capital requirement, meaning that the obligation currently only arises when a breach has already occurred. The IRRD, however, introduces the concept of pre-emptive recovery plan, which is drafted at an earlier stage, before any deterioration of the financial solvency position. The requirement to prepare such plan should be applied proportionately and is without prejudice to the development and submission of a realistic recovery plan as required under Article 138(2) of Directive 2009/138/EC. Where relevant, elements of the pre-emptive recovery plan may inform or serve as a basis for the development of such recovery plan.
The pre-emptive recovery plans shall provide measures, including triggers, recovery options, and procedures, that the insurance or reinsurance undertaking or group would take to restore its financial position following a significant deterioration of that position that could pose a risk to their viability. The pre-emptive recovery plans must be updated at least every two years or when the undertaking concerned faces material changes as described in Article 5(4) in the IRRD.
The pre-emptive recovery plans are subject to review and assessment by Financial Stability and the Danish Financial Supervisory Authority. The Danish Financial Supervisory Authority may request additional information or modifications, until the pre-emptive recovery plan satisfies the requirements laid down in the IRRD.
Resolution plans
After implementation in Denmark, Financial Stability and the Danish Financial Supervisory Authority will be tasked with creating resolution plans on entity and group levels to prepare for scenarios where a company cannot recover and enters resolution. While the current Danish Insurance Business Act already contains certain provisions on resolution, the IRRD introduces a materially new framework by requiring authorities to prepare resolution plans in advance and by establishing a defined set of resolution tools, which do not currently exist under Danish Law.
The resolution plans are mandatory for insurers and reinsurers that are within scope based on criteria like size, risk profile, and cross-border activity, ensuring at least 40% coverage of the Member State's life insurance and reinsurance market and 40% of its non-life insurance and reinsurance market.
The resolution plan is triggered when an insurer is failing or likely to fail, and no private or supervisory action could prevent failure in a reasonable timeframe but only if the resolution is necessary in the public interest. Insurers and reinsurers may need to participate in resolution planning processes with Financial Stability and the Danish Financial Supervisory Authority and groups operating cross-border face additional coordination obligations with relevant national authorities. One of the resolution objectives is to ensure the continuity of critical functions, i.e. activities whose disruption could significantly affect policyholders, beneficiaries, and financial stability. The identification of critical functions is therefore a key element in the process of resolution planning.
Financial Stability and the Danish Financial Supervisory Authority will assess whether insurers and reinsurers are practically resolvable under stress, which includes assessing their operational and legal structures. A set of defined resolution tools is available to the authorities, such as solvent run-off, asset separation, bridge undertakings, and write-downs/bail-in mechanisms, allowing for orderly resolution without entering into insolvency proceedings. However, the IRRD provides safeguards, including the "no creditor worse off" principle, ensuring that creditors, including policyholders, are treated no worse than in a normal insolvency process.
Administrative penalties
Consistent with the minimum harmonisation nature of the IRRD, Member States are to determine the type of administrative penalties or other administrative measures and the level of administrative fines for not complying with the national provisions implementing the IRRD. It remains to be seen how this discretion in designing its penalty regime will be exercised in Denmark.
Outlook and next steps
The IRRD will introduce new compliance obligations for insurers and reinsurers operating in the EU, including the preparation and maintenance of pre-emptive recovery plans, participation in resolution planning processes, and potential adjustments to contractual arrangements governed by non-EU law. Whilst insurers and reinsurers are already familiar with certain planning obligations under existing rules, such as the requirement to submit recovery plans or financing plans upon a breach of the solvency capital requirement or the minimum capital requirement, the IRRD expands these obligations. For large and complex insurance groups, and particularly for entities operating across multiple Member States, these requirements will demand careful strategic planning and substantial organisational resources.
Plesner's insurance team is closely monitoring the implementation of the IRRD and the continued development of technical standards and guidelines at EU level. With deep expertise in insurance regulation, financial services, and crisis management frameworks, our team is well positioned to advise on all aspects of IRRD preparedness. We encourage insurers and reinsurers to begin assessing the impact of the IRRD on their operations at an early stage.
Read Directive (EU) 2025/1 of the European Parliament and of the Council of 27 November 2024