## 1fraea2019011 — INTRODUCTION ## Source details **Canonical URL:** [1fraea2019011 — INTRODUCTION](https://www.imf.org/-/media/files/publications/cr/2019/1fraea2019011.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1fraea2019011.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1fraea2019011.pdf.json) --- ### Institutional setting and market structure - Purpose: Pilot assessment of implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions (KA) in the insurance sector in France as part of an FSAP by the IMF during 2018–19; uses the Key Attributes Assessment Methodology for the Insurance Sector (draft). - Legal upgrades: Ordinance 1608 of November 2017 and additional detailed regulations. - Coverage of RRP: preventive part (recovery and resolution planning (RRP)) currently applies only to 14 insurance entities (each with assets above €50 billion), which jointly represent about 95 percent and 70 percent of the life and nonlife insurance market’s total premiums, respectively. - Key institutions and roles: - ACPR: regulation, supervision, and resolution of banks and insurers; resolution powers expanded to insurance in December 2016; has functional and financial autonomy under the Monetary and Financial Code (MFC) but operationally draws on Banque de France (BdF) support. - ACPR’s Resolution College: exclusive authority to take resolution actions against supervised entities and executes SRB-initiated measures where applicable. - HCSF: macroprudential authority; reports to parliament. - MoF (Trésor) and BdF: represented in ACPR colleges with roles in crisis prevention, ELA provision (BdF supplies ELA to solvent but illiquid institutions based on ACPR advice); ELA to a resolved entity decided by the ECB on a case-by-case basis following an internal Eurosystem procedure adopted May 15, 2017. - Market scale and structure: - French financial system total assets: about €13.5 trillion (almost six times the GDP). - Nonbanks growth: 47 percent in the last 10 years. - Insurance sector growth: 65 percent since 2008, to about 1.2 times the GDP. - Number of insurance institutions: more than 700; 236 are life or mixed insurers; 14 are reinsurers. - System manages €2.8 trillion in total assets. - The 14 insurance institutions designated for RRP jointly represent 88 percent of total assets. - Penetration: 7 percent and 6 percent of GDP for life and nonlife, respectively. - Density (premium per capita): €2,362 (life) and €2,000 (nonlife). - Average solvency coverage ratios: 224 percent (life) and 273 percent (nonlife). - Ownership: 86 percent of total assets owned by domestic institutions. - One systemic insurer is government owned; bancassurance links to financial conglomerates are important. ### Preconditions for effective resolution regimes - Institutional coordination: - Formal coordination mechanisms exist; no official crisis management plan but legal framework establishes formal coordination and information sharing. - ACPR’s Resolution College is central decision-making body with coordination arrangements. - Supervision and oversight: - ACPR leads regulation and supervision; enforcement powers include administrative measures and sanctions; organizational structure includes Supervisory College, Resolution College, and Sanctions Committee. - Policyholder protection schemes (PPSs): - Two PPSs act under private law with limited resources: - FGAO: protects nonlife compulsory policyholders; industry-funded; MoF supervised. - FGAP: covers life insurance policyholders; created in 1999; funding based on technical provisions; guarantees up to €70,000 per policyholder and €90,000 for bodily harm damages; FGAP retains claim in liquidated estate to recover contributions. - No privately funded, dedicated resolution fund for the insurance sector beyond PPSs. ### Liquidation framework - Multiple court-based insolvency proceedings available to insurance companies; liquidation applies if entity becomes balance sheet insolvent and resolution would no longer be feasible. - Liquidation may be requested by ACPR or commenced by courts after ACPR consent; PPSs may provide financial support in liquidation to settle claims and facilitate portfolio transfers. ### Main findings and legislative context - France among first jurisdictions of global systemic importance to establish comprehensive insurer resolution framework. - Legislative changes: Sapin II (December 2016) and Ordinance 1608 (November 2017) upgraded toolkit and scope for insurers’ recovery and resolution. - Resolution tools available include transfers of assets and liabilities and bridge institutions; framework does not include a bail-in tool. - Historical record: no systemic insurance resolution cases; most failures historically resolved via absorption or liquidation. - Principal challenge: operationalization and testing of new regime (operational manuals, alerts, triggers, escalation, simulations). - Gaps and further work: - Additional tools needed for full compliance with KAs, notably bail-in powers and adequate resolution funding arrangements. - In absence of an EU Directive, legal/institutional constraints may arise; authorities view an EU Directive as essential to advance recovery and resolution on a level playing field. - Current framework presents a relatively narrow path to resolve systemically important insurers. - Design of applicability: - Framework applies to insurers that breach SCR and MCR coverage ratio while remaining balance sheet solvent under Solvency II (assets still cover liabilities). - If balance-sheet insolvent, liquidation applies and resolution no longer applicable. ### Scope, responsibilities, independence, accountability (KA 1–2) — selected findings & recommendations - High alignment with KAs on institutional organization and infrastructure; scope and responsibilities of ACPR clearly established in law. - RRP preventive threshold: €50 billion in total assets set by MoF in 2018; results in 14 insurers classified as systemic for RRP. - List of 14 insurers designated for RRP (names preserved): - Axa Group. - CNP Group. - Covea Group. - Groupama Group. - AG2R-La Mondiale Group. - Allianz France Group (subgroup of Allianz). - Aviva France Group (subgroup of Aviva). - Generali France Group (subgroup of Generali). - BNP Paribas Assurances Group (subgroup of BNP Paribas). - SOGECAP Group (subgroup of Société Générale). - Crédit Agricole Assurances Group (subgroup of Crédit Agricole). - Natixis Assurances Group (subgroup of BPCE). - GACM (subgroup of Crédit Mutuel—CM11). - Suravenir (subsidiary of Crédit Mutuel—Arkea). - These 14 insurers collectively represent over 90 percent of technical provisions in life insurance and just under 75 percent of nonlife and health insurance TPs; from premium perspective, about 95 percent of life market and just over 68 percent of nonlife and health (figures based on year end-2017). - Independence and governance issues: - ACPR has formal financial autonomy (Article L. 612-18) but budgetary caps on wage bill and BdF subsidiary budget status limit operational independence. - Resolution College decisions to place entities into resolution require conforming opinion from Supervisory College (de facto veto); recommendation: give resolution authority power to trigger solvency assessment to mitigate supervisory forbearance. - Overlaps in membership between Supervisory and Resolution Colleges create unclear separation between supervision and resolution; separation should be clarified. - Resourcing: - Full implementation is work in progress; ACPR Resolution Department improving staff resources. - Staffing不足: Resolution Directorate hired one of five approved full-time positions for insurance resolution; bank resolution team has 25 full-time staff. - Mid-2019: ACPR to start assessing recovery plans and preparing resolution plans; resolution planning for additional 13 insurers expected to begin in 2020. - Legal protection: - Personal legal protection of ACPR staff recognized under French administrative law; contractors not paid directly by ACPR (e.g., temporary administrators paid by entity) not covered—enhancements recommended. ### Powers and funding (KA 3–6) — key shortcomings and details - Timely entry into resolution constrained by requirement that entity be balance-sheet solvent under Solvency II (assets > liabilities) at time of resolution; otherwise liquidation required. - Liability restructuring and bail-in: - Legal framework lacks general authority to restructure liabilities or implement bail-in (write-down or conversion) except in very restricted forced portfolio transfer circumstances. - Forced portfolio transfer may impose haircut on insurance liabilities via bidding process. - Authorities acknowledge advantages of bail-in but cite operational and legal reservations; note absence of EU-level directive for insurance analogous to BRRD. - Funding: - No private resolution fund; no specific provisions for public funding. - PPSs (FGAP and FGAO) exist but were not designed to provide resolution funding; lack of resolution funding complicates capitalizing a bridge institution. - Asset valuation and Solvency II: - Solvency II valuation central to framework; Solvency II implementation since 2016 has strengthened balance sheets. - In resolution, authorities would require steps for verification and prudent assessment (e.g., mandatory external audits) of assets and liabilities; current law lacks clear provisions on valuation verification responsibilities. - Safeguards: - Safeguards under KAs (respecting hierarchy of creditor claims, pari passu, NCWO) are omitted because resolution is confined to balance-sheet solvent entities. ### Cross-border cooperation (KA 7–9) — findings - Framework encourages timely cross-border cooperation and information sharing; CMG requirements applied to the only G‑SII under ACPR’s scope. - ACPR has drafted COAG for its G‑SII and signed COAGs where ACPR is host (Allianz, Aviva, Generali). - Public disclosure of COAG existence not made; recommended to publicly disclose existence where appropriate. - Local branches of reinsurers excluded from cross-border scope. ### Recovery and Resolution Planning (KA 10–12) — alignment and implementation status - RRP arrangements align with KAs: content requirements, cross-border preparations, data access, information protection, confidentiality, and IT infrastructure in legal framework. - Implementation status: - Except for one G‑SII, the other 13 insurers subject to new RRP requirements are beginning recovery planning; first reports due mid-2019. - ACPR expects each insurer will employ approximately 2–3 FTEs to develop an initial recovery plan. - ACPR given up to six months to assess submitted recovery plans; insurers to resubmit revised plans within two months if significant shortcomings. - Resolution planning for additional 13 insurers expected to begin in 2020. - Resolvability assessments: - ACPR has performed yearly resolvability assessments for Axa Group since G‑SII designation; three cycles completed; process to be expanded to other insurers over €50 billion threshold. ### Detailed assessments of specific KAs — selected points - KA 2 (Resolution Authority): - Legal designation: ACPR sole agency for preventive and resolution measures for insurers (Article L. 612-1 II 4° of the MFC). - Resolution College composition: seven members; chaired by BdF Governor or deputy; requires Supervisory College assent to place entity into resolution. - EC 2.5 human/budgetary resources: Resolution Directorate hired one of five approved FTEs; bank resolution team has 25 FTEs. - EC 2.6 legal protection: ACPR operates under French administrative law; state liability limited to gross misconduct; individuals protected for actions in good faith except in cases of intentional action or inexcusable misconduct. - EC 2.7 access: ACPR has full access to premises and information; Article L. 612-15-1 2° empowers director of resolution to require information. - KA 3 (Resolution powers): - Legal entry conditions (Article L. 311-18): insurer may be declared failing or likely to fail if licensing noncompliance, recovery measures insufficient, group minimum capital ratio breach, insurer likely not to fulfill obligations except those towards policyholders, or extraordinary public support required. - Resolution measures limited to cases where Solvency II value of assets > Solvency II value of liabilities (Article L. 311-18 III 4°). - Bridge institution: tool provided; lifespan two years after last transfer, extendable in one-year periods; no deadline to finalize transfer of liabilities and assets—legal certainty concerns. - Fiducie (management vehicle) available but operational framework not fully specified; not a separate legal entity but separate estate. - No general bail-in power (EC 3.11 and EC 3.12); restructuring limited to forced portfolio transfer and tender outcomes. - Moratorium/stay powers: limited—Article L. 311-30 8° allows suspension/delay/limit of surrender values; no overall stay power on unsecured creditors; legal redress procedure via courts can suspend payments. - KA 4 (set-off, netting, collateral): - Article L. 311-15 prevents contractual early termination on ground of recovery/resolution if essential obligations continue to be met. - Policyholders do not have proprietary claims to insurer-held assets (except certain pension products); no general requirement for asset segregation. - Reinsurance contracts covered by Article L. 311-15; continuity of reinsurance generally ensured though coordination needed for foreign reinsurers. - KA 5 (Safeguards): - No statutory requirement to exercise resolution powers in accordance with hierarchy of creditor claims; policyholders have preferential ranking (Article L. 327-2). - NCWO safeguard not built into framework; creditors may seek damages in court. - Resolution College decisions cannot be reversed (Article L. 311-54); courts limited to awarding compensation. - Directors and officers acting in compliance with Resolution College instructions are protected (Article L. 122-4 Crim. Code). - KA 6 (Funding): - No privately funded resolution fund for insurance; framework lacks credible temporary financing mechanisms for resolution. - PPSs (FGAO and FGAP) oriented to liquidation support rather than resolution funding; FGAP funding: 0.05 percent of TP with half kept on insurers’ balance-sheet in segregated account; guaranteed amounts €70,000 per policyholder and €90,000 for bodily harm damages. - No provisions for temporary public funding or temporary public ownership within framework. - KA 9–12 (Cross-border cooperation, resolvability, RRP, information): - CMG legal basis: Articles L. 311-59, R. 311-24, R. 311-22/23; COAG drafted for French G‑SII; ACPR signatory to COAGs for Allianz, Aviva, Generali. - Resolvability assessments in place for G‑SII and to be extended. - RRP legal and operational requirements set; recovery plans to be reviewed/validated by board; review cycle biennial for non‑G‑SIIs, annual for G‑SIIs. - Information access: resolution authority can request offsite information and conduct onsite inspections via Supervision Department; legal gateways for information exchange with EEA and third-country authorities exist (Articles L. 311-56, L. 311-57, L. 632-7, L. 632-13, L. 632-15). - Confidentiality safeguards: Article L. 612-17 (professional secrecy) and Article L. 311-26; violations subject to criminal sanctions. ### Key recommendations and priorities (as identified) - Strengthen operational independence and resource flexibility of ACPR (revisit budgetary caps and wage bill constraints). - Clarify separation of supervisory and resolution functions (composition and chairing of Supervisory and Resolution Colleges). - Grant resolution authority power to initiate solvency assessments and trigger resolution to mitigate supervisory forbearance. - Consider legislative introduction of bail-in powers and clear resolution funding arrangements, or seek EU-level directive to provide legal certainty and level playing field. - Specify valuation verification procedures (including mandatory external audits) for Solvency II valuations at point of failure. - Define clearer operational framework for fiducie and bridge institution time limits and safeguards to reduce legal uncertainty. - Clarify role and potential participation of PPSs (FGAO and FGAP) in resolution beyond liquidation support. - Test information sharing and RRP-related MIS capabilities; build out ACPR resolution team ahead of 2020 resolution planning work. _International Monetary Fund — INTRODUCTION (1fraea2019011)_ ### INTRODUCTION _________________________________________________________________________________ 4 ### INTRODUCTION ### Institutional setting and market structure - This is a pilot assessment of the implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions (KA) in the insurance sector in France, completed as part of a Financial Sector Assessment Program (FSAP) undertaken by the International Monetary Fund (IMF) during 2018–19. - The assessment uses the Key Attributes Assessment Methodology for the Insurance Sector (Methodology) (draft form as of the assessment). - The resolution framework for insurers was most recently upgraded by Ordinance 1608 of November 2017 and additional detailed regulations. - The framework applies to all insurance entities subject to the Solvency II framework, except the preventive part (recovery and resolution planning (RRP)), which currently applies only to 14 insurance entities (each with assets above €50 billion), which jointly represent about 95 percent and 70 percent of the life and nonlife insurance market’s total premiums, respectively. - The assessment team comprised Mario Mansilla (MCM), Maike B. Luedersen (LEG), and Alfonso Ventoso and Spyridon Zarkos (MCM external experts). - Key institutional roles and features: - The ACPR is tasked with the regulation, supervision, and resolution of banks and insurers; its resolution powers were expanded in December 2016 to include the insurance sector. - The ACPR has functional and financial autonomy under the Monetary and Financial Code (MFC) but operationally draws on support from the Banque de France (BdF) for human, IT, and other resources. - The ACPR’s Resolution College (“Collège de Résolution”) has exclusive authority to take resolution actions against supervised entities within the ACPR’s remit and executes resolution measures initiated by the SRB for entities under its remit. - The ACPR’s mandate includes preserving France’s financial system stability and protecting customers, insurance policyholders, members, and beneficiaries of supervised entities, as well as leading the fight against money laundering and terrorist financing. - Market structure and scale: - The French financial system’s total assets amount to about €13.5 trillion (almost six times the GDP). - Nonbanks grew by 47 percent in the last 10 years; the insurance sector grew by 65 percent since 2008, to about 1.2 times the GDP. - The French insurance industry comprises more than 700 institutions, of which 236 are life insurers or mixed insurers, and 14 are reinsurers. - The system manages €2.8 trillion in total assets. - The 14 insurance institutions designated for RRP jointly represent 88 percent of total assets. - Penetration: 7 percent and 6 percent of GDP for life and nonlife, respectively. - Density: €2,362 and €2,000 in premium per capita (life and nonlife). - Average solvency coverage ratios: 224 percent and 273 percent for life and nonlife entities, respectively. - Ownership: 86 percent of total assets are owned by domestic institutions. - One of the systemic insurers is government owned; an important market segment is linked to financial conglomerates, especially under bancassurance. ### Preconditions for effective resolution regimes - France has established institutional arrangements for financial oversight and crisis management; while there is no official crisis management plan, the legal framework establishes formal coordination mechanisms and information sharing to support timely decision making. - The ACPR’s Resolution College is a key decision-making body for banking and insurance resolution with coordination arrangements in place. - The Haut Conseil de Stabilité Financière (HCSF) is the macroprudential authority; its mission includes safeguarding financial stability, ensuring a sustainable contribution of the financial sector to economic growth, and preventing and mitigating systemic risks. The HCSF reports to the parliament. - Roles of MoF and BdF: - The MoF (Trésor) and BdF each have crucial roles in crisis prevention and risk mitigation. - The MoF is represented at the ACPR’s Supervisory College (without voting power) and at the Resolution College (full member with voting power), on the Board of the Deposit Guarantee and Resolution Fund (FGDR), and is involved in SRB decisions on EU bank resolution schemes. - The BdF supplies emergency liquidity assistance (ELA) to solvent but illiquid institutions, based on ACPR advice. Regarding ELA under resolution, pursuant to a recent ECB Governing Council decision, ELA to a resolved entity is decided by the ECB on a case-by-case basis. - An internal procedure based on Eurosystem level principles was adopted on May 15, 2017, specifying requirements leading to ELA provision and related responsibilities. A. A Well-Established Financial Stability Framework - Formal coordination mechanisms exist that involve relevant economic and financial policy-making institutions participating according to mandates. - Material information is shared among participants’ technical teams to support timely decision making. - The HCSF focuses on balanced credit market growth and limiting moral hazard, including through the resolution framework and facilitation of institutional cooperation. B. An Effective System of Supervision, Regulation, and Oversight of Insurers - The ACPR leads regulation and supervision of the insurance industry and has ample powers to conduct oversight and enforce regulations. - The ACPR’s mandate includes microprudential oversight with macroprudential contributions to preserve stability; it has resolution powers, supervises anti–money laundering and counter-terrorist financing, and handles consumer protection in banking and insurance. - Enforcement powers include administrative measures and sanctions. - Organizational structure: General Secretariat leads operational departments; three top decision-making bodies are the Supervisory College, the Resolution College, and a Sanctions Committee. C. Effective Protection Schemes for Insurance Policyholders - The sector safety net is composed of two policyholder protection schemes (PPSs) which can provide support in liquidation proceedings; both act under private law though created by dedicated laws. - Fonds de Garantie des Assurances Obligatoires de dommages (FGAO): - Focuses on protection of nonlife policyholders (e.g., car accidents, skiing, bicycling, hunting insurance, mining-related housing damages). - Protects policyholders of compulsory nonlife insurance in case of insurer failure. - Industry-funded private entity governed by a Board of Directors and supervised by the MoF; available resources are rather limited. - Fonds de Garantie des Assurances de Personnes (FGAP): - Specializes in policyholder protection in the life insurance sector; created in 1999 (Loi 99-532 25, Art. 68 JORF). - Funding is calculated based on the amount of technical provisions, with an additional committed line of credit from the insurance industry. - In the event of failure, FGAP provides the liquidator with financial resources to ensure repayment of policyholders’ claims up to preestablished limits: €70,000 per policyholder and €90,000 for bodily harm damages; FGAP retains a claim in the liquidated estate to recover contributions. - There is no privately funded, dedicated resolution fund for the insurance sector beyond the PPSs. - The PPSs are expected to continue having an active role in the sector’s safety net. D. A Well-Established Liquidation Framework - Multiple court-based insolvency proceedings supplement recovery and resolution frameworks; all types of company law insolvency proceedings are in principle available to insurance companies. - Use of some procedures (e.g., conciliation and safeguards) appears less likely. - The legal redress procedure may be used at the request of the administrator appointed by the Resolution College, particularly to deal with residual insurance entities after portfolio transfer. - If an insurer’s financial position deteriorates well below conditions for entry into resolution, liquidation applies and resolution will no longer be feasible. - Liquidation proceedings may be requested by the ACPR or commenced by courts after obtaining ACPR consent. - In liquidation, financial support may be sought from relevant PPSs to settle outstanding claims and facilitate portfolio transfers (in full or in part). ### Main findings - France is among the first jurisdictions of global systemic importance to establish a comprehensive resolution framework for insurers. - Legislative and regulatory changes: - Legislation enacted in December 2016 (Sapin II) and Ordinance 1608 of November 2017 upgraded the legal framework to increase the ACPR’s toolkit and scope for insurers’ recovery and resolution. - The framework provides for a broad set of new resolution tools, such as transfers of assets and liabilities, and bridge institutions, but does not include a bail-in tool. - Historical context and challenge: - France has not dealt with systemic insurance resolution cases historically; few failures of non-systemic insurers were generally dealt with through absorptions or liquidations. - A principal challenge is operationalization and testing of the new regime and institutional arrangements to ensure effectiveness (including preparation of operational manuals, procedural steps, alerts and triggers, escalation processes, and simulation exercises). - Gaps and areas for further progress: - The framework reflects many, but not all, elements needed for full compliance with the KAs; additional tools are needed, especially bail-in powers and adequate resolution funding arrangements. - In the absence of a directive at the European level, legal and institutional constraints may arise; authorities view an EU Directive as essential to advance recovery and resolution in the context of a level playing field for EU insurers. - At present, the French insurance resolution framework presents a relatively narrow path to resolve systemically important insurers. - Design of applicability: - The resolution framework is designed to apply to insurers that breach the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR) coverage ratio while remaining balance sheet solvent in a Solvency II sense (i.e., assets still cover liabilities). - This design reflects the authorities’ perception that sudden failures are unlikely in insurance because liquidity is a less important risk factor for insurers compared to banks, and insurers are not expected to fail as abruptly as banks. - If an entity becomes balance sheet insolvent, the framework leads to liquidation and resolution would no longer be applicable. *International Monetary Fund — INTRODUCTION* ### 18. This pilot assessment identified a few areas where further work is needed for the ### 1fraea2019011 - 18. This pilot assessment identified a few areas where further work is needed for the ### Scope, Responsibilities, Independence, and Accountability (KA 1–2) - High alignment of the framework with KAs on institutional organization and infrastructure. - Scope and responsibilities of the ACPR clearly established in law, including interaction with relevant policy-making entities. - Definitions and thresholds for institutions covered by the resolution framework are clearly established and transparent. - ACPR has recognized institutional accountability and transparency; financial autonomy is formally granted in law. - Full operational independence would require the freedom to determine resource levels based on expected demands. - Nonvoting presence of the MoF in the Supervisory and Resolution Colleges suggests need to streamline government role to avoid perceived conflicts of interest. - Resolution authority is identified and mandated in law for relevant decision making, but placing an entity into resolution requires a conforming opinion from the Supervisory College. - Recommendation: resolution authority should have power to trigger an assessment of an entity’s solvency with a view to taking resolution action, to mitigate supervisory forbearance concerns. - Overlaps in membership between the Supervisory College (in its different compositions) and the Resolution College create unclear separation of supervisory and resolution responsibilities; separation should be clarified to avoid perception of risks. - Implementation status and resourcing: - Full implementation of the law is work in progress. - ACPR’s Resolution Department is actively improving staff resources. - Current staffing to implement the new legal framework—and for complex insurer resolutions—is insufficient; this limitation could impede resolution preparedness. - In mid-2019, the ACPR will start assessing recovery plans and begin preparing resolution plans, develop resolution policies, and continue participating in CMGs for foreign subsidiaries. - Legal protection: - Personal legal protection of ACPR staff enforcing the law is recognized under French administrative law. - Contractors not paid directly by the ACPR (e.g., temporary administrators paid by the entity) do not fall under this protection; enhancements to legal protection regime are needed. ### Powers and Funding (KA 3–6) - Design constraints: - Framework designed with key constraints that could undermine ability to deal with systemic failures. - Timely entry into resolution outlined in law, but intervention is expected only under the premise of balance sheet solvency; otherwise failing entity would need to be liquidated. - This restricts the toolkit and timeframe for early intervention and resolution more generally. - Liability restructuring and bail-in: - Legal framework does not provide authority to restructure liabilities of a failing entity, except in very restricted circumstances of a forced portfolio transfer. - Forced portfolio transfer may be used (e.g., to a third party in a bidding process that may propose imposing a haircut on insurance liabilities). - Authorities recognize advantages of mandating bail-in (write-down or conversion) but note considerations: - Possible legal challenges of constitutional nature. - Reservations related to balance sheet structure (e.g., level of liabilities for pure insurers). - No creditor worse off (NCWO) concerns across different business lines (life vs. nonlife). - Although there are no legal constraints under the French constitution that would hinder introduction of bail-in powers, legal uncertainty may arise from lack of specific exemptions in EU law that creditors could exploit in legal challenges. - Funding: - No private funding arrangements provide adequate ex ante resources for resolution; no specific provisions for public funding. - Two policyholder protection schemes exist: the FGAP and the FGAO (for life and nonlife mandatory insurance policyholders, respectively). - These PPS could participate in forced portfolio transfers and provide funding in liquidation, but they were not designed to provide resolution funding. - Lack of resolution funding would make capitalization of a bridge institution challenging; hence need to proceed with resolution while assets still sufficient to cover liabilities. - Asset valuation and Solvency II: - Asset valuation of failing insurer’s balance sheet under Solvency II is a cornerstone of the new framework. - Solvency II implementation in France since 2016 has strengthened industry balance sheets. - Supervision of valuation models and Solvency II parameter calculations is appropriately intrusive and appears adequate. - In a resolution scenario, authorities would require steps for verification and prudent assessment (for instance, mandatory external audits) of assets and liabilities for Solvency II purposes—for both market risks and moral hazard considerations—to avoid considerable operational and legal risks. - Safeguards: - Safeguards called for under the KA (respecting hierarchy of creditor claims, pari passu treatment of creditors, and NCWO stipulations) are omitted from the framework due to the notion of resolution only in case of balance sheet solvency (under Solvency II). ### Cross-border Cooperation (KA 7–9) - Framework encourages cross-border cooperation to bring a failing insurer into resolution. - Cooperation should be timely, with information preceding actions, and apply to resolution cases initiated domestically or in a foreign jurisdiction. - CMG requirements, including cooperation agreements, are in line with the KAs and applied in France to the only G-SII under ACPR’s scope. - Authorities are reviewing arrangements for other insurance groups with significant cross-border activities. - Adequate mechanisms should be ensured for the resolution authority to coordinate with foreign judicial proceedings. - Note: local branches of reinsurers are omitted from scope of cross-border arrangements. ### Recovery and Resolution Planning (KA 10–12) - RRP arrangements are compliant with the KAs in all relevant aspects: - Content requirements, cross-border preparations, data access powers, information protection safeguards, and confidentiality arrangements are processed by the ACPR and received from other supervisors. - IT systems infrastructure is in place in the legal framework. - ACPR has power to require decisive actions derived from RRP exercises. - Implementation status: - With the exception of one globally systemic insurer, the other 13 insurers subject to the new RRP requirements are just starting recovery planning; first reports due in mid-2019. - Both the ACPR and supervised entities are still gaining experience with this tool; it can be instrumental in future resolution cases. - Resolution planning for the additional 13 insurers is expected to begin in 2020. ### Detailed Assessment — KA 1: Scope (selected findings and statistics) - Legal basis: - Comprehensive recovery and resolution framework established by Ordinance 1608 of November 27, 2017 (the Ordinance). - Ordinance amended the Monetary and Financial Code (MFC) and the Insurance Code (IC); complemented by a Decree and an Order issued in 2018. - Coverage: - Article L. 311-1 of the IC applies to all providers of insurance activities except insurers still subject to Solvency I. - Resolution regime applies to: - French insurers (and reinsurers) headquartered in France subject to Solvency II; - Insurance subsidiaries of banks (examples given: Crédit Agricole Assurances, Natixis Assurance, Société Générale Insurance (Sogecap)); - Subsidiaries of foreign G-SIIs (examples: Allianz, Generali, Aviva); - Mutual insurers (examples: Covéa, Groupama); - Insurance holding companies, pension institutions, and supplementary professional pension institutions. - Resolution regime does not apply to: - Insurers excluded from Solvency II due to non-systemic nature (very small firms subject to liquidation); - Branches of reinsurers (none currently operating in France). - Threshold and classification: - The preventive part of the resolution regime (RRP) does not apply to insurers below the €50 billion (in total assets) floor established by the MoF in 2018. - No current process to determine criticality of functions and services or specific insurer risks; operational criterion is balance sheet size threshold (€50 billion). - This results in 14 insurers legally classified as systemic for RRP purposes: - Axa Group. - CNP Group. - Covea Group. - Groupama Group. - AG2R-La Mondiale Group. - Allianz France Group (subgroup of Allianz). - Aviva France Group (subgroup of Aviva). - Generali France Group (subgroup of Generali). - BNP Paribas Assurances Group (subgroup of BNP Paribas). - SOGECAP Group (subgroup of Société Générale). - Crédit Agricole Assurances Group (subgroup of Crédit Agricole). - Natixis Assurances Group (subgroup of BPCE). - GACM (subgroup of Crédit Mutuel—CM11). - Suravenir (subsidiary of Crédit Mutuel—Arkea). - These insurers collectively represent over 90 percent of the French insurance industry’s technical provisions (TP) in the life insurance segment and just under 75 percent of nonlife and health insurance TPs. - From a premium perspective, they represent about 95 percent of the life market and just over 68 percent of nonlife and health. - Figures in this paragraph are based on financial data at year end-2017. - Scope coverage for specific entity types: - Holding companies: Article L. 311-1 3° (Les sociétés de groupe d’assurance). - Nonregulated entities: Article L. 311-1 4° (provision for significance to the business). - Domestic branches of foreign insurers: Article L-310-2 3° and 4° (does not include local branches of reinsurers). ### KA 2: Resolution Authority (selected standards and findings) - Jurisdiction should have a designated administrative authority responsible for resolution powers; where multiple authorities exist, mandates should be clearly defined and coordinated. - Where different resolution authorities resolve entities of same group within a jurisdiction, a lead authority should be identified to coordinate. - As part of statutory objectives and functions, the resolution authority should: - Pursue financial stability and ensure continuity of systemically important financial services, payment, clearing, and settlement functions. - Protect depositors, insurance policy holders, and investors where applicable and in coordination with relevant schemes. - Avoid unnecessary destruction of value and seek to minimize overall costs of resolution and losses to creditors, consistent with other statutory objectives. - Duly consider potential impact of resolution actions on financial stability in other jurisdictions. - Resolution authority should have power to enter into agreements with resolution authorities of other jurisdictions. - Resolution authority should have operational independence, transparent processes, sound governance, adequate resources, and be subject to rigorous evaluation and accountability mechanisms; it should have expertise, resources, and operational capacity for large and complex firms. - Resolution authority and staff should be protected against liability for actions and omissions while discharging duties in good faith, including actions supporting foreign resolution proceedings. *https://www.imf.org/-/media/files/publications/cr/2019/1fraea2019011.pdf* ### 2.7 The resolution authority should have unimpeded access to firms where that is material for the ### 2.7 The resolution authority should have unimpeded access to firms where that is material for the ### Essential criteria for KA 2 — overview - EC 2.1: The legal framework clearly identifies one or more resolution authorities and provides it or them with a clear mandate. Where there are multiple resolution authorities or where multiple authorities are involved in a resolution process, the resolution regime provides for the identification of a lead authority that coordinates the resolution of entities within a financial group or conglomerate, or the resolution of a single insurer, within that jurisdiction; sets out clear arrangements for the coordination and provides for a clear allocation of objectives, functions, and powers of those authorities. - EC 2.2: The statutory objectives and functions of the resolution authority include those set out in KA 2.3, as applicable to the sectoral responsibilities of the resolution authority. Where the exercise of resolution powers requires court involvement, the objectives of that involvement are broadly aligned with the statutory objectives and functions set out in KA 2.3. Administrators appointed by a court are expected to act in accordance with those objectives and functions. - EC 2.3: The resolution authority is, by law and in practice, operationally independent in the performance of its statutory responsibilities. There are arrangements, procedures, and safeguards against undue political or industry influence, which include: (i) internal governance arrangements which promote sound and independent decision-making; (ii) rules and procedures for the appointment and dismissal of the head of the authority, members of the governing body (where relevant), and senior management; and (iii) rules on conflicts of interest. - EC 2.4: The resolution authority is accountable through a transparent framework for the discharge of its duties in relation to its statutory responsibilities. This framework includes procedures for reviewing and evaluating actions that the resolution authority takes in carrying out its statutory responsibilities and the periodic publication of reports on its resolution actions and policies, as necessary. - EC 2.5: The resolution authority has adequate human and budgetary resources, or access to such resources, to enable it to carry out its resolution functions effectively without undermining its independence, both before and during a crisis. - EC 2.6: The legal framework provides legal protection through statutes for the resolution authority, its head, members of the governing body and its staff, and any agents against liability for actions taken, or omissions made while discharging their duties in good faith and acting within the scope of their powers, including: actions taken in support of foreign resolution proceedings and indemnification against any costs of defending any such actions. - EC 2.7: Under the legal framework, the resolution authority has unimpeded access to the premises of insurers, where necessary, for the purposes of resolution planning and the preparation and implementation of resolution measures. ### Description & findings — legal designation, institutional arrangements, and mandate - The legal framework (MFC) designates the resolution authority and outlines its scope, functions, and powers. - Pursuant to Article L. 612-1 II 4° of the MFC, the ACPR (Autorité de Contrôle Prudentiel et de Résolution) is the sole agency in charge of implementing the preventive and resolution measures for insurers. - ACPR history and scope: - The ACPR was created in 2010 (Order 2010-76), originally as ACP (Autorité de Contrôle Prudentiel), from the merger of three bodies: (i) Comité des Entreprises d’Assurance (CEA); (ii) Comité des Établissements de Crédit et des Entreprises d’investissement (CECEI); and (iii) Commission Bancaire et Autorité de Contrôle des Assurances et des Mutuelles (ACAM). - In 2013 the Law on the Separation and Regulation of Banking Activities entrusted the ACP with banking crisis prevention and resolution supervision; ACP became ACPR. - Resolution powers were extended to include the insurance sector in December 2016. - Within the ACPR: - The Resolution College is the decision-making body of the resolution authority and has exclusive authority to take resolution actions against supervised entities within ACPR’s remit. - The Resolution College executes and implements resolution measures initiated by the SRB for credit institutions under SRB’s direct remit. ### Description & findings — EC 2.2 statutory objectives - ACPR statutory objectives include financial stability and protection of depositors (Article L. 612-1). - Insurance code stipulates objectives of resolution: (i) financial stability, (ii) protection of depositor, (iii) protection of public funds, (iv) continuity of critical functions (Article L311-22). - The legal framework does not explicitly include minimization of resolution costs and losses to creditors, nor the impact of resolution actions on financial stability in other jurisdictions, though those principles underlie other practices (e.g., EC 8.2). - ACPR’s Supervisory College (three configurations) and the Resolution College exercise resolution powers without court involvement; courts become involved at liquidation stage. ### Description & findings — EC 2.3 independence and governance - MFC grants ACPR formal financial autonomy (Article L. 612-18) but subjects it to budgetary caps on its wage bill; its budget is a subsidiary budget of the BdF — these features limit operational independence. - ACPR collegiate organization: - Supervisory and Resolution Colleges are the decision-making bodies for recovery and resolution in insurance (Article L. 612-4 of the MFC). - Members’ status and appointment/termination rules in the MFC aim to ensure independence; rules exist to prevent conflicts of interest (including sanctions committee per Art. L. 612-10). - Decisions are collegial; colleges’ members do not have specific functions. - Supervisory College composition: - Plenary: 19 members; restricted compositions for specific areas; restricted configuration: eight members. - Chaired by the Governor of the BdF (also ACPR Chairperson) or by the deputy governor of the BdF. In practice, the deputy governor has chaired the restricted composition since ACPR inception. - Insurance composition may be chaired by the vice-chair of the ACPR per Article L. 612-12 III. - Resolution College composition: - Total of seven members; always chaired by the governor or the deputy governor of the BdF (Article L. 612-8-1). - Members include the vice-chair of the ACPR, the president of the AMF, the director of the Trésor, and the president (or representative) of the commercial, economic, and financial chamber of the Court de Cassation. - For banking groups or financial conglomerates, the president of the FGDR is included as a full member. - Decision-making constraint: - The Resolution College’s decision to place an entity into resolution requires the formal agreement of the Supervisory College by way of a conforming opinion. The Resolution College cannot act independently; the Supervisory College has veto power over placing an entity into resolution. ### Description & findings — EC 2.4 accountability, transparency, and reporting - Interaction between Supervisory College and Resolution College is central to accountability/transparency. - Supervisory College composition includes heads of AMF, the Trésor, the vice-chair of ACPR, and experts in customer protection, actuarial matters, and industry expertise. - The Supervisory College meets quarterly in business-as-usual times and ad hoc as needed. - Conflicts of interest are managed by the president of the ACPR and the Haute Autorité pour la Transparence de la Vie Publique. - Resolution Directorate prepares the agenda for Resolution College meetings; institutional framework for resolution has been developed. - Reporting and communications: - ACPR’s annual report on 2018 activities expected to include a box on insurance resolution. - ACPR communicates via publications, conferences, and events including industry participants. - A conference with FFA was organised in November 2018 to formally launch the recovery planning biennial cycle. - Systemically important insurers are required to submit a recovery plan to the ACPR by July 2019; ACPR will give its experts six months to assess these recovery plans and provide feedback no later than early 2020. - Insurers would have more than one year to reflect and improve plans before resubmitting by July 2021. ### Description & findings — EC 2.5 human and budgetary resources - The Resolution Directorate organization mirrors supervision and benefits from ACPR workforce for support functions. - Insurance resolution work integrated into existing supervisory structures; resolution teams involved in both insurance and banking resolution matters. - Additional staff expected to join insurance resolution team to work on insurance resolution planning (13 resolution plans have to be developed within the next two years). - Resolution Directorate has hired one of the five approved full-time positions for insurance resolution; the resolution team for banks has 25 full-time staff. - Authorities expect human resources from supervision to be quickly deployed to support resolution teams in a systemic insurer failure scenario. ### Description & findings — EC 2.6 legal protection and liability - No explicit statutory provision concerning protection of ACPR and its staff. - ACPR operates under French administrative law and has no legal personality; actions against ACPR acts/omissions must be brought against the French state. - State may incur liability only in case of gross misconduct (“faute lourde”) in performance of tasks (Conseil d’Etat, November 30, 2001, Ministry of Economy vs. Kechichian). - Senior officials, employees, and contract agents are protected by general administrative law principles (“faute de service”); protection afforded by ACPR on behalf of the French state. - Individuals pursued for actions taken in course of duties may not incur personal liability for actions/omissions made in good faith unless intentional action or inexcusable misconduct (“la faute d'une gravité inadmissible”) is established; ACPR is required to afford protection and may grant advance for legal counsel expenses upon application. - Administrators appointed by the Resolution College whose remuneration is borne by the insurance undertaking would not fall under the scope of the protection; contractual agents engaged and paid directly by the ACPR (e.g., valuation experts) are covered. ### Description & findings — EC 2.7 access to premises and information - ACPR authorities have full access to insurers’ premises and may request any information and conduct onsite inspections. - For planned onsite inspections by the resolution authority, they will be conducted by the onsite supervisory inspection teams. - Article L. 612-15-1 2° of the MFC provides that the director of resolution may require any insurance company to provide any information necessary for development and implementation of crisis prevention and resolution measures in the insurance sector. - The director of resolution may also request such information through onsite inspections carried out by the authority’s agents with support of the secretary general of the ACPR. ### Assessment of KA 2 — key evaluations and concerns - The composition of the Supervisory College and the Resolution College do not appear to ensure full independence between ACPR and the Trésor, and do not ensure full separation across supervision and resolution functions. - Budgetary caps for headcount and compensation can constrain development of new insurance resolution functions and ACPR response to current and projected demands; authorities should revisit these features per international best practices. - Presence of a nonvoting Trésor representative in the Supervisory and Resolution Colleges may be legitimate for coordination but could create perception of lack of full independence. - Supervisory and Resolution Colleges partly share members and may be presided over by the same individual; this raises concerns about separation of key functions. - To mitigate supervisory forbearance risks, the resolution authority should have power to trigger an assessment of the solvency of an entity with a view to taking resolution action; under existing regime, the Resolution College’s powers appear constrained because it cannot act without the Supervisory College’s conforming opinion. - The inclusion of the president (or representative) of the commercial, economic, and financial chamber of the Court de Cassation in the Resolution College is unusual: while providing high-level legal expertise, it may be perceived as undermining separation of powers between administrative bodies and the judiciary and creates perception risks; other solutions could be explored to ensure competent legal expertise is available. - Given ACPR’s broad mandate, any bank, holding company, insurer, or insurance subsidiary would fall under its scope. - Adequacy and sufficiency of staff resources: - Authorities consider supervision staff can be deployed to resolution tasks in urgent need, but the intense work program over the next three years (assessing recovery plans for systemic institutions, formulating resolution plans, developing resolvability assessments) will require increasing commitments of ACPR experienced permanent professional resources. - For financial conglomerates (primarily banks with a developed bancassurance model), authorities recognize the need for comprehensive resolution arrangements that bring together banking and insurance expertise; a dedicated decision-making body (restricted composition of the supervisory college) exists, but other processes are at different stages of implementation and not yet operational. - The existing resolution framework does not provide for a role of the existing PPSs. There are two PPSs in France: FGAO and FGAP; each has some resources but without a role in support of the resolution process (see EC6.1 for more granular description). *Source: 2.7 The resolution authority should have unimpeded access to firms where that is material for the purposes of resolution planning and preparation and implementation of resolution measures (IMF PDF).* ### 3.1 Resolution should be initiated when a firm is no longer viable or likely to be no longer viable ### 3.1 Resolution should be initiated when a firm is no longer viable or likely to be no longer viable ### Entry into resolution - Resolution should be initiated when a firm is no longer viable or likely to be no longer viable and has no reasonable prospect of becoming so. - The resolution regime should provide for timely and early entry into resolution before a firm is balance sheet insolvent and before all equity has been fully wiped out. - There should be clear standards or suitable indicators of nonviability to help guide decisions on whether firms meet the conditions for entry into resolution. ### Resolution powers (broad range) — powers authorities should have (3.2) - (i) Remove and replace the senior management and directors, and recover monies from responsible persons, including claw-back of variable remuneration; - (ii) Appoint an administrator to take control of and manage the affected firm with the objective of restoring the firm, or parts of its business, to on-going and sustainable viability; - (iii) Operate and resolve the firm, including powers to terminate contracts, continue or assign contracts, purchase or sell assets, write down debt, and take any other action necessary to restructure or wind down the firm’s operations; - (iv) Ensure continuity of essential services and functions by requiring other companies in the same group to continue to provide essential services to the entity in resolution, any successor, or an acquiring entity; ensuring that the residual entity in resolution can temporarily provide such services to a successor or an acquiring entity; or procuring necessary services from unaffiliated third parties; - (v) Override rights of shareholders of the firm in resolution, including requirements for approval by shareholders of particular transactions, in order to permit a merger, acquisition, sale of substantial business operations, recapitalization, or other measures to restructure and dispose of the firm’s business or its liabilities and assets; - (vi) Transfer or sell assets and liabilities, legal rights, and obligations, including deposit liabilities and ownership in shares, to a solvent third party, notwithstanding any requirements for consent or novation that would otherwise apply (see KA 3.3); - (vii) Establish a temporary bridge institution to take over and continue operating certain critical functions and viable operations of a failed firm (see KA 3.4); - (viii) Establish a separate asset management vehicle (for example, as a subsidiary of the distressed firm, an entity with a separate charter, or as a trust or asset management company) and transfer to the vehicle for management and run-down nonperforming loans or difficult-to -value assets; - (ix) Carry out bail-in within resolution as a means to achieve or help achieve continuity of essential functions either: (i) by recapitalizing the entity hitherto providing these functions that is no longer viable; or, alternatively, (ii) by capitalizing a newly established entity or bridge institution to which these functions have been transferred following closure of the nonviable firm (the residual business of which would then be wound up and the firm liquidated) (see KA 3.5); - (x) Temporarily stay the exercise of early termination rights that may otherwise be triggered upon entry of a firm into resolution or in connection with the use of resolution powers (see KA 4.3 and Annex IV); - (xi) Impose a moratorium with a suspension of payments to unsecured creditors and customers (except for payments and property transfers to CCPs and those entered into the payment, clearing, and settlements systems) and a stay on creditor actions to attach assets or otherwise collect money or property from the firm, while protecting the enforcement of eligible netting and collateral agreements; and - (xii) Effect the closure and orderly wind-down (liquidation) of the whole or part of a failing firm with timely pay-out or transfer of insured deposits and prompt (for example, within seven days) access to transaction accounts and to segregated client funds. ### Transfers of assets and liabilities (3.3) - Resolution authorities should have the power to transfer selected assets and liabilities of the failed firm to a third-party institution or to a newly established bridge institution. - Any transfer of assets or liabilities should not: - (i) Require the consent of any interested party or creditor to be valid; and - (ii) Constitute a default or termination event in relation to any obligation relating to such assets or liabilities or under any contract to which the failed firm is a party (see KA 4.2). ### Bridge institutions (3.4) - Resolution authorities should have the power to establish one or more bridge institutions to take over and continue operating certain critical functions and viable operations of a failed firm, including: - (i) The power to enter into legally enforceable agreements by which the authority transfers, and the bridge institution receives, assets and liabilities of the failed firm as selected by the authority; - (ii) The power to establish the terms and conditions under which the bridge institution has the capacity to operate as a going concern, including the manner under which the bridge institution obtains capital or operational financing and other liquidity support; the prudential and other regulatory requirements that apply to the operations of the bridge institution; the selection of management and the manner by which the corporate governance of the bridge institution may be conducted; and the performance by the bridge institution of such other temporary functions as the authority may from time to time prescribe; - (iii) The power to reverse, if necessary, asset and liability transfers to a bridge institution subject to appropriate safeguards, such as time restrictions; and - (iv) The power to arrange the sale or wind-down of the bridge institution, or the sale of some or all of its assets and liabilities to a purchasing institution, so as best to affect the objectives of the resolution authority. ### Bail-in powers (3.5–3.6) - Powers to carry out bail-in within resolution should enable resolution authorities to: - (i) Write down in a manner that respects the hierarchy of claims in liquidation (see KA 5.1) equity or other instruments of ownership of the firm, unsecured and uninsured creditor claims to the extent necessary to absorb the losses; and to - (ii) Convert into equity or other instruments of ownership of the firm under resolution (or any successor in resolution or the parent company within the same jurisdiction), all or parts of unsecured and uninsured creditor claims in a manner that respects the hierarchy of claims in liquidation; - (iii) Upon entry into resolution, convert or write-down any contingent convertible or contractual bail-in instruments whose terms had not been triggered prior to entry into resolution and treat the resulting instruments in line with (i) or (ii). - The resolution regime should make it possible to apply bail-in within resolution in conjunction with other resolution powers (for example, removal of problem assets, replacement of senior management and adoption of a new business plan) to ensure the viability of the firm or newly established entity following the implementation of bail-in. ### Insurance-specific resolution powers (3.7) - In the case of insurance firms, resolution authorities should also have powers to: - (i) Undertake a portfolio transfer moving all or part of the insurance business to another insurer without the consent of each and every policyholder; and - (ii) Discontinue the writing of new business by an insurance firm in resolution while continuing to administer existing contractual policy obligations for in-force business (run-off). ### Legal and operational capacity (3.8) - Resolution authorities should have the legal and operational capacity to: - (i) Apply one or a combination of resolution powers, with resolution actions being either combined or applied sequentially; - (ii) Apply different types of resolution powers to different parts of the firm’s business (for example, retail and commercial banking, trading operations, and insurance); and - (iii) Initiate a wind-down for those operations, which in that particular circumstance are judged by the authorities to be not critical to the financial system or the economy (see KA 3.2 xii). *Source: 1fraea2019011 - 3.1 Resolution should be initiated when a firm is no longer viable or likely to be no longer viable* ### 3.9 In applying resolution powers to individual components of a financial group located in its ### 3.9 In applying resolution powers to individual components of a financial group located in its jurisdiction ### EC 3.1 — Legal criteria for timely and early entry into resolution - The regulatory framework grants the ACPR powers for early intervention, enhanced through RRP requirements and resolvability assessments; implementation of resolvability assessments is currently underway. - Article L. 311-18 establishes that an insurer may be declared failing or likely to fail if one of the following conditions is met: - The insurer is no longer compliant with the conditions set for its licensing; - The implementation of recovery measures by the insurer does not provide a significant improvement with respect to the level of own funds or to the decrease of the risk profile; - In case of a group, it does not comply with the minimum group capital ratio; - The insurer is likely not to fulfil its obligations except those towards policyholders; and - An extraordinary public support is required. - Scope and trigger mechanics: - The resolution framework extends to firms under Solvency II and is designed to trigger early supervisory action when an insurer breaches Solvency Capital Requirements (SCR) while remaining balance sheet solvent. - Breach of SCR may put the firm into enhanced monitoring or recovery. - Key tools available to the ACPR before entry in resolution include: restriction of activities, restriction of policy surrenders, and requirements to reduce exposure. - Resolution measures may be implemented only if Solvency II value of assets > Solvency II value of liabilities (Article L. 311-18 III 4°), i.e., firm breached the Minimum Capital Requirement (MCR) but is still Solvency II positive. - If not balance sheet solvent, the entity cannot be resolved and would be put into regular liquidation/wind-down. ### EC 3.2 — Arrangements for timely determination of nonviability and entry into resolution - The IC provides clear processes supporting timely determination of nonviability and entry into resolution, including triggers. - The resolution college evaluates if conditions for entry into resolution are met; however, it can open a resolution procedure only after obtaining the assent of the supervisory college (Article L. 311-18), which de facto undermines the power of the resolution authority. - Four cumulative conditions of entry into resolution: - The insurer is failing or likely to fail; - A resolution action is necessary to preserve the enumerated resolution objectives; - There is no reasonable prospect which alternative measures would prevent the failure; - Net assets are positive. - Once opened, the resolution college decides measures or combinations to apply as provided by law. - Cross-border arrangements: - For cross-border entities, the college of supervisors has arrangements (Annex 1E) to activate emergency alerts and crisis management procedures. - For G-SIIs, cooperation agreements within Crisis Management Groups (CMGs) include specific cooperation and coordination provisions. - Court-based insolvency proceedings supplement the recovery and resolution framework for closure and orderly wind-down, including conciliation, safeguards procedure, and legal redress procedure (opened at request of ACPR or by the court with ACPR assent in some cases). - If suspension of payments and recovery impossible, liquidation proceedings apply; liquidation may be requested by ACPR or commenced by courts after ACPR consent. - Judicial liquidator appointed by courts from a list maintained by commercial court; administrative liquidator designated by ACPR works alongside. - Financial support may be sought from relevant PPS to settle outstanding claims and facilitate portfolio transfer. ### EC 3.3 — Power to remove and replace senior management and directors - Resolution college has power to “suspend or revoke any person exerting effective management” (Article L. 311-30 1°), including suspension or revocation of Board members’ mandates (L. 311-30 2°). ### EC 3.4 — Power to recover monies from persons responsible for failure - ACPR inspectors review managers’ contracts for clauses allowing reduction or cancellation of variable remuneration and other compensation not yet paid in case of resolution; ACPR may request contractual changes. - Article L. 311-16 mandates the resolution authority to ensure individuals in executive positions contribute financially to the resolution. - Law does not include specific claw-back provisions for variable remuneration already paid out at time of failure; claw-back possible only via court-led process. - Criminal law (Article L. 241-3 Commercial Code) criminalizes misuse of company assets and sanctions excessive remuneration where it exceeds entity’s financial capacity or is disproportionate to work performed. ### EC 3.5 — Powers to take temporary control and operate an insurer - Article L. 311-30 explicitly includes powers to effect portfolio transfer, sale of business, and change of legal forms; these powers include asset sales. - Power to purchase assets exists within context of changes in asset allocation such as portfolio rebalancing. - Resolution authority can restrict or forbid continuation of certain activities, including distribution of dividends. - Resolution College can appoint an administrator to manage the entity. ### EC 3.6 — Powers to ensure continuity of essential services - Article L. 311-51 allows the resolution college to “provide to the purchaser the services or infrastructures which are necessary... [and] takes any measure making it possible to ensure the continuity of the rights and commitments related to the transferred activity.” - Article L. 311-19 details conditions under which services and infrastructures shall be provided to successor/acquiring party. ### EC 3.7 — Power to affect sale, merger, transfer of assets/liabilities without consent - Legal framework sets out broad powers and tools and provides that Resolution College decisions with respect to a resolution measure should not be opposed or interfered with (Articles L. 311-30 3° and 4°, L. 311-35, L. 311-41, and L. 311-23). - Limitations and missing enabling elements: - Absence of resolution funding and unclear participation of PPSs in resolution (e.g., for portfolio transfers other than forced transfers and bridge bank capitalization). - Operational framework for trust fund scheme (fiducie) not specified (see EC 3.9). ### EC 3.8 — Bridge institution powers and terms - Bridge institution tool is provided; bridge entity has life span of two years after last transfer, extendable for one-year periods as many times as needed. - No time limit to finalize transfer of liabilities (and assets) to bridge bank; transfers can occur at any point during bridge life. - Flexibility may raise legal certainty concerns and lead to creditor challenges. - Safeguards needed to ensure timely decisions (following in-depth valuation) so bridge institution is returned to private sector. - Capitalization of a bridge institution could be challenging within existing framework (see EC 3.7). ### EC 3.9 — Management vehicle (fiducie) for run-off - IC provides for management vehicle via trust fund scheme (fiducie) (Articles L. 311-41 and 311-42); details of fiducie laid down in contract. - Features and operational requirements: - Fiducie useful for portfolios not commercially attractive/high risk (e.g., asbestos). - Possible transfer to several trustees enabling market solution where multiple insurers run the estate. - Creation includes detailed contract specifying operating methods and remuneration elements. - Trustee(s) must be identified and selected; trustee must be an insurance undertaking willing to assume run-off risk. - If trust expires before run-off completion, remaining assets and liabilities transferred to trustee’s balance-sheet. - Fiducie is not a separate legal entity but constitutes a separate estate on which the entity under resolution does not have control. - Operational framework for fiducie is not entirely specified. ### EC 3.10 — Power to reverse transfers to bridge institution or management vehicle - Article L. 311-37: resolution college has power to reverse transfer of assets and liabilities to a bridge institution before resolution procedure is closed. - Law does not provide same reversal feature for fiducie; reversal to a management vehicle not anticipated but could potentially be included contractually in the fiducie. - No clear time restrictions other than end of resolution procedure. ### EC 3.11 — Powers to absorb losses (write-down, bail-in, etc.) - Legal framework does not grant resolution authority powers to restructure liabilities (write down or convert capital instruments or bail-in unsecured creditors) as required in this EC. - This is an important departure from the KA toolkit and limits scope in systemic resolution scenarios. - Existing framework allows restructuring of liabilities only in the context of a forced portfolio transfer where resolution college may accept a third party offer that may include restructuring of portfolio claims (including reduction of guaranteed rate in life policies). - Authorities note merit in establishing such powers but cite operational reservations (balance-sheet structures, insurers not part of bancassurance, treatment of policyholders’ claims across business lines) and legal considerations. - Legal considerations: - No apparent constitutional constraints to introducing bail-in powers; Article 17 of Declaration of Human and Civic Rights requires public necessity, clear legal basis, and just and prior indemnity for deprivation of property. - Bank resolution framework (BRRD) includes bail-in via EU Directive transposition; insurance resolution lacks a European framework comparable to BRRD, raising potential EU law compatibility and legal uncertainty regarding shareholder rights and necessary exemptions. - Flexibility under Solvency II at national level may be insufficient legal basis to overcome existing EU law constraints. ### EC 3.12 — Clarity on scope of bail-in power - There is no bail-in power (see EC 3.11). ### EC 3.13 — Powers to restructure insurance liabilities - Power exists only in limited circumstances: in context of a forced portfolio transfer to a third party accepted by the resolution authority. - Restructuring results from a competitive bidding (tender) process for objective valuation of portfolio; resolution authority does not control outcome (Article L. 311-31 and L. 612-33-2 of the MFC). - These powers were enhanced after a 2015 Supreme Court decision emphasizing need for fair and prior compensation and have yet to be tested in practice. ### EC 3.14 — Power to impose suspension of payments (moratorium) - Article L. 311-30 8° empowers resolution college to “suspend, delay or limit for whole or part of the portfolio the payment of surrender values” and advances on contracts for an individual insurer. - There is no overall power to suspend payments to unsecured creditors (senior debtholders or pari passu claims); hierarchy distinction between unsecured creditors and policyholders should be clarified in law. - The HCSF could impose system-wide measures to maintain financial stability. ### EC 3.15 — Power to issue or obtain a stay of creditor actions - Resolution authority does not have the power to impose a stay of creditor actions. - Article L. 311-29: resolution administrator may ask resolution college to initiate a legal redress procedure in courts; legal redress procedure encompasses notice to creditors and suspension of payments as decided by court. ### EC 3.16 — Power to effect closure and orderly wind-down (pay-out, transfer, run-off) - Timely pay-out to policyholders: - No explicit statutory provision, but objective captured under broad mandate of policyholder protection and foreseen as primary duty in resolution process—unless moratorium considered necessary. - Transfer of insurance contracts and associated assets/liabilities: - Portfolio transfer tool exists in recovery and resolution framework and has been part of court-led liquidation process. - Discontinuation of new business (run-off): - Power exists (Article L. 310-30 5°). - Court-based insolvency proceedings supplement powers to effect closure and orderly wind-down. ### EC 3.17 — Ability to combine or sequence resolution actions - No reference in recovery and resolution framework constrains discretion of resolution authority to combine resolution tools at time of action or later (“implemented separately or in combination”, Article L. 311-33). ### Assessment of KA 3 — Key deficiencies and considerations - Overall: Resolution powers depart significantly from KAs, limiting the toolkit for effective resolution. - Specific issues requiring attention: - Separation and independence between supervisory and resolution activities need to be secured via composition of supervisory and resolution colleges. - Resolution authority’s power to declare failing or likely to fail is constrained by requirement for supervisory college assent. - Missing or unclear tools: - Resolution funding (resolution fund and/or power to restructure liabilities to increase own funds) is absent, rendering bridge tool difficult to implement. - Clarify role of PPSs in resolution; currently undefined whether PPSs may provide funding to support portfolio transfers (other than forced transfers); their role so far is in liquidation proceedings. - Provisions to verify failing entity valuation are lacking; Solvency II valuation used at point of failure may need updating and validation, and external audit of Solvency II calculations/process is not mandatory. - No guidance on who performs valuation updates (failing undertaking, resolution authority, onsite inspection, or third party). - Consider making external audit of Solvency II calculations/process mandatory; validation process should be transparent and set out in law. - Fiducie operational framework not entirely specified; no provision for a management vehicle set up by resolution authority. - Bridge institution concerns: - No deadline to finalize transfers in/out of bridge institution; legal certainty issues and potential creditor challenges. - Need safeguards to ensure timely decisions and return to private sector after valuation process. - Solvency II constraint: - Resolution measures can be implemented only if Solvency II value of assets > Solvency II value of liabilities (Article L. 311-18 III 4°); if insurer is not balance-sheet solvent, it must be placed into liquidation/wind-down. - Potential legal enhancements to consider: - Strengthen powers available to resolution authority (rather than courts) for imposing suspension of payments and staying creditor attachment actions. - Cross-border cooperation: - Articles L. 311-59 II and L. 311-60 provide for establishment of colleges of competent equivalent authorities for cross-border groups led by ACPR or with ACPR participation. - Authorities do not plan BRRD-like Resolution Colleges with other insurance resolution authorities, considering current approach adequate given predominantly domestic nature of insurer groups, but Resolution Colleges may reduce spillovers for undertakings with systemic presence abroad. - Transparency: - Some publication requirements exist: ACPR decisions on forced portfolio transfers must be published in Official Journal of the French Republic, making portfolio transfer enforceable and enabling a two-month period to bring legal challenge before Conseil d’État (Articles R. 311-1 and R. 421-1 of Code of Administrative Justice). - ACPR issues press releases/communications only in cases considered important; authorities should assess sufficiency of communication tools. *Source: 1fraea2019011 - 3.9 In applying resolution powers to individual components of a financial group located in its jurisdiction* ### 4.1 The legal framework governing set-off rights, contractual netting and collateralization ### 4.1 The legal framework governing set-off rights, contractual netting and collateralization ### Treatment of set-off, acceleration, early termination, and temporary stays - Entry into resolution and the exercise of any resolution powers should not trigger statutory or contractual set-off rights or constitute an event that entitles any counterparty to exercise contractual acceleration or early termination rights provided the substantive obligations under the contract continue to be performed. - If contractual acceleration or early termination rights are exercisable, the resolution authority should have the power to stay temporarily such rights where they arise by reason only of entry into resolution or in connection with the exercise of any resolution powers. The stay should: - Be strictly limited in time (for example, for a period not exceeding 2 business days); - Be subject to adequate safeguards that protect the integrity of financial contracts and provide certainty to counterparties (see I-Annex 5 on Conditions for a temporary stay); - Not affect the exercise of early termination rights of a counterparty against the firm being resolved in the case of any event of default not related to entry into resolution or the exercise of the relevant resolution power occurring before, during or after the period of the stay (for example, failure to make a payment, deliver or return collateral on a due date). - The stay may be discretionary (imposed by the resolution authority) or automatic in its operation. Jurisdictions should ensure clarity as to the beginning and the end of the stay. - Resolution authorities should apply the temporary stay on early termination rights in accordance with the guidance set out in I-Annex 5 to ensure it does not compromise the safe and orderly operations of regulated exchanges and FMIs. ### EC 4.1 — Specific assets linked to insurance contracts (segregation) - Description & findings: - In the French insurance regime policyholders do not have proprietary claims or other rights with respect to assets that the insurer holds, even in the case of unit-linked insurance contracts. - There is no requirement for segregation of assets, with the exception of specific products related to particular pension policies of limited significance. - Pursuant to Article L. 327-2, policyholders have a claim against the insurer for compensation with a preferential ranking in the hierarchy of creditor claims in insolvency. - In the case of unit-linked products, this compensation could take the form of additional shares (e.g., shares of UCITs) beyond those originally allocated via the contract purchase. ### EC 4.2 — Prohibition on early termination due solely to resolution - Description & findings: - The insurance code (Article L. 311-15) stipulates that as long as the essential obligations of a contract continue to be met, a recovery or resolution measure taken by the authorities cannot infringe in any way on the contractual rights of the entity. - Early termination, suspension, modification, compensation or any other rights attached to this contract cannot be exercised on the ground of the competent authority’s actions in the context of recovery and/or resolution. - To the extent the insurance code is an administrative law (loi de police), any contract clauses not in line with this provision are null and void. ### EC 4.3 — Reinsurance continuity in resolution - Description & findings: - Article L. 311-15 refers broadly to “contracts” and thus encompasses reinsurance; continuity of reinsurance contracts is ensured beyond the resolution event. - Enforcement is straightforward for domestic reinsurers or reinsurance contracted through a local broker; for contracts with foreign reinsurers, the resolution authority would need to coordinate with home supervisors beforehand. - Continuation of reinsurance contracts can be decisive in asset/liability restructuring, for example in resolution using a bridge institution. ### EC 4.4 — Temporary stay where prohibition does not apply - Conditions for a permissible temporary stay on early termination rights: - (i) The stay is limited in time; - (ii) If the stay is used in connection with a transfer power, the resolution authority is not permitted to select for transfer some, but not all, contracts with the same counterparty that are subject to the same netting agreement; - (iii) Where the contracts to which the early termination right relates are transferred to another entity or remain with an insurer that has been recapitalized in resolution, early termination rights can be exercised after the expiry of the stay period, only in the event of a separate default under the terms of the contract that is not based on the entry into resolution or the exercise of resolution powers; - (iv) Where those contracts remain with the failing insurer that has not been recapitalized, any early termination rights that were subject to the stay may be exercised immediately on the expiry of the stay, or if earlier, a notification by the resolution authority that the contracts will remain with that insurer. - Description & findings: - Language in Article L. 311-15 covers financial contracts; hence, they are subject to the prohibition referred to in EC 4.2. ### Assessment of KA 4 - The framework is aligned with the principles under this KA. - Specification of the scope regarding reinsurance contracts (EC 4.3) would provide further clarity to the applicability of certain resolution tools (e.g., bridge institution). --- ### KA 5 Safeguards ### High-level safeguards principles (KA 5) - Resolution powers should: - Respect the hierarchy of claims while providing flexibility to depart from equal (pari passu) treatment of creditors of the same class, with transparency about reasons for departures, if necessary to contain systemic impact or maximize value for all creditors. - Ensure equity absorbs losses first, and no loss should be imposed on senior debt holders until subordinated debt (including all regulatory capital instruments) has been written-off entirely (whether or not loss-absorption through write-down is accompanied by conversion to equity). - Creditors should have a right to compensation where they do not receive at a minimum what they would have received in a liquidation of the firm under the applicable insolvency regime (“no creditor worse off than in liquidation” safeguard). - Directors and officers should be protected from lawsuits for actions taken when complying with resolution authority decisions. - Resolution authority should have capacity to exercise powers with necessary speed and flexibility, subject to constitutionally protected legal remedies and due process. - Legislation should not provide for judicial actions that could constrain implementation of, or result in reversal of, measures taken by resolution authorities acting within legal powers and in good faith; instead provide for redress by awarding compensation, if justified. - Jurisdictions should allow temporary exemptions from disclosure requirements or postponements where disclosure could affect successful implementation of resolution measures. ### EC 5.1 — Respect for hierarchy of claims - Description & findings: - There is no provision requiring the resolution authority to exercise resolution powers in accordance with the applicable hierarchy of creditor claims. - Policyholders have preferential rights over the assets of the insurance undertaking (Article L. 327-2), ranking sixth on movable property (see Article 2331 of the Civil Code) and ranking second on immovable property (see Article 2375 of the Civil Code). - Ranking of claims on movable assets (listing preserved exactly): - (i) Contributions and taxes (Article 1920 of the General Tax Code); - (ii) Except as otherwise provided, claims with special “furniture privileges” (Article 2332-1 of the Civil Code); - (iii) Legal costs (Article 2331, 1° of the Civil Code); - (iv) Funeral fees (Article 2331, 2° of the Civil Code); - (v) Any costs of the last disease, irrespective of their termination, concurrently between those to whom they are owed (Article 2331, 3° of the Civil Code); - (vi) Certain wage claims (Article 2331, 4° of the Civil Code); - (vii) Social security funds claims (Article 2332-2 of the Civil Code); - (viii) Supplies of subscriptions to the debtor and his family during the last year and, for the same time period, certain agricultural products (Article 2331, 5° of the Civil Code); - (ix) The claim of a victim of an accident or of its successors relating to medical, pharmaceutical, and funeral expenses and for allowances awarded as a result of temporary disability (Article 2331, 6° of the Civil Code); - (x) Claims of policyholders and beneficiaries of contracts (Article L. 327-2); - (xi) Workers' and employees' allowances by clearing banks and other institutions authorized for the service of family allowances or by employers exempted from membership of such an institution under Article 74 of Livre I of the Labor Code (Article 2331, 7° of the Civil Code); and - (xii) The claims of the clearing banks and other institutions authorized for the service of family allowances towards their members, and certain payments related to family allowances (Article 2331, 8° of the Civil Code). - Claims of policyholders on immovable property of French enterprises: - (i) Legal costs (Article 2375, 1° of the Civil Code); - (ii) Certain wage claims (Article 2375, 2° of the Civil Code); - (iii) Claims of policyholders and beneficiaries of contracts (Article L. 327-2); and - (iv) Claims secured by special property privilege (Article 2376 of the Civil Code). - The legal framework embeds the notion that an insurance undertaking is balance-sheet solvent under Solvency II at the time resolution action is taken and for the implementation of a resolution tool. Under such notion, the Solvency II value of its assets is expected to be at least equal to the value of its liabilities, which would ensure compensation in full of all policyholders. - Under that notion, the legal framework does not need to mandate application of the hierarchy of creditor claims and provide for safeguards such as the NCWO principle. However, shareholders and subordinated debtholders may suffer losses. Application of any resolution measure is conditional on fair and prior compensation (for example, see Article L. 311-31 for the case of a portfolio transfer and Article L. 311-42 for the case of a liability management structure). ### EC 5.2 — Pari passu principle and permitted departures - Description & findings: - The current resolution framework does not include provisions for pari passu treatment; it is designed to achieve full repayment of all policyholders (see EC 5.1). - While resolution authority will be informed by pari passu considerations, it may pursue different strategies where pari passu treatment may not be feasible. - For instance, during application of the portfolio transfer tool part or the entirety of the insurance book will be transferred; decision of which policies to transfer is not expected to observe, or be constrained by, the pari passu principle. ### EC 5.3 — NCWO safeguard and compensation - Description & findings: - The framework does not require a counter-factual calculation in the context of liquidation (see EC 5.1). - For creditors (including policyholders), a NCWO consideration and compensation, if required, could materialize through unilateral action. Creditors could seek damages in court depending on the outcome of the counterfactual analysis. NCWO is not built into the framework. - For policyholders, compensation may be available from the PPS (within certain limits). ### EC 5.4 — Protection of directors and officers - Description & findings: - Directors and officers acting in compliance with instructions from the Resolution College of the ACPR are protected against liability on the basis of Article L. 122-4 of the Criminal Code, which exempts persons who make a damaging event from liability when acting on instructions from a public authority known as "legitimate authority" (such as the ACPR’s Resolution College in this context). ### EC 5.5 — Timely exercise of resolution powers and court involvement - Description & findings: - Resolution decisions do not need prior court approval, as described in KA 2.3. - The legal framework specifically stipulates that there should not be any impediment to decisions taken by the resolution college. ### EC 5.6 — Judicial review limited to compensation - Description & findings: - The decision of the resolution college cannot be reversed (Article L. 311-54). - Courts may only award compensation up to the amount of incurred losses, but cannot reverse the resolution measure. Nothing can be allowed that would oppose or impede decisions taken by the resolution college. This includes attempts to suspend applicability of decisions. ### EC 5.7 — Temporary exemptions from disclosure requirements - Description & findings: - The insurance code (Article L. 311-23) specifies that obligations other than those resulting from execution of resolution measures shall be fulfilled to the extent circumstances permit, if these requirements remain relevant at that point in time. - The provision refers clearly to publication and reporting obligations that may be postponed to a later date. ### Assessment of KA 5 - Alignment of safeguards provisions in the law shows gaps with respect to the KAs, but they seem consistent with the structure followed in the overall framework. - To the extent resolution is applied with a limited scope only to balance-sheet solvent entities, ECs 5.1, 5.2, and 5.3 would not be critical. - Further safeguards are needed when contemplating a broader framework. --- ### KA 6 Funding of firms in resolution ### High-level principles (KA 6) - Jurisdictions should have statutory or other policies in place so that authorities are not constrained to rely on public ownership or bail-out funds as a means of resolving firms. - Where temporary sources of funding to maintain essential functions are needed to accomplish orderly resolution, the resolution authority or authority extending the temporary funding should make provision to impose any losses incurred on: - (i) shareholders and unsecured creditors subject to the “NCWO than in liquidation” safeguard (see KA 5.2); and recover them - (ii) if necessary, from the financial system more widely. - Jurisdictions should have in place privately-financed deposit insurance or resolution funds, or a funding mechanism with ex post recovery from the industry for the costs of providing temporary financing to facilitate the resolution of the firm. *Source: 1fraea2019011 - 4.1 The legal framework governing set-off rights, contractual netting and collateralization* ### 6.4 Any provision by the authorities for temporary funding should be subject to strict conditions ### 6.4 Any provision by the authorities for temporary funding should be subject to strict conditions ### Conditions for temporary funding (principles) - Any provision by the authorities for temporary funding should be subject to strict conditions that minimize the risk of moral hazard, and should include: - (i) a determination that the provision of temporary funding is necessary to foster financial stability and will permit implementation of a resolution option that is best able to achieve the objectives of an orderly resolution, and that sources of private funding have been exhausted or cannot achieve these objectives; and - (ii) the allocation of losses to equity holders and residual costs, as appropriate, to unsecured and uninsured creditors and the industry through ex post assessments, insurance premium or other mechanisms. - As a last resort, some countries may decide to have a power to place the firm under temporary public ownership and control in order to continue critical operations while seeking a permanent solution (sale or merger). Where such powers exist, a provision should be made to recover any losses incurred by the state from unsecured creditors or, if necessary, the financial system more widely. ### Essential criteria and framework elements (EC 6.1–6.3) - EC 6.1: The legal framework should establish credible arrangements to provide temporary financing (temporary liquidity support and temporary solvency support) that can assist use of the resolution powers set out in KA 3 and achieve resolution objectives. Possible arrangements include: - (i) A privately funded resolution fund; - (ii) A privately funded PPS; - (iii) A privately funded fund with combined policyholder protection and resolution functions; and - (iv) Recourse to public funds, coupled with a mechanism for recovery from the industry of any losses incurred in the provision of public funds. - EC 6.2: If the regime provides for temporary recourse to public funds under EC 6.1(iv), financing should be available only if: - (i) assessed as necessary for financial stability by supporting the implementation of a resolution option that best achieves statutory objectives; - (ii) private sources of funding have been exhausted or would not achieve those objectives; - (iii) losses are allocated in accordance with the hierarchy of claims to (a) shareholders, (b) unsecured creditors and (c) as appropriate, policyholders; and - (iv) if necessary, public funds are recovered from the insurance sector or financial industry. - EC 6.3: If the regime includes placing an insurer under temporary public ownership, exercise of that option should be subject to: - (i) the failure of the insurer, or exhaustion of other resolution options, would cause financial instability; and - (ii) clear rules regarding allocation of losses to shareholders and creditors or, if necessary, recovery from financial system participants more widely. ### Description & findings for France (framework and mechanisms) - The framework does not contemplate a privately funded resolution fund for the insurance sector. - There are two policyholder protection schemes (PPSs): FGAO and FGAP. - Representatives of these PPSs could be heard/consulted by the authority’s resolution college; however, they have no role in the support of resolution actions (see KA 2). - Both PPSs could be involved in a supplementary manner akin to their role in normal insolvency proceedings (e.g., supporting liquidation of the undertaking with portfolios and assets left behind unless transferred). - Specific references to their possible role in a portfolio transfer are found in Articles L. 421-9, L. 423-2, and L. 612-33-2 of the MFC. - FGAO (Fonds de Garantie des Assurances Obligatoires) - Founded in 1951, before third party motor liability insurance became mandatory in 1958. - Provides compensation for traffic accidents caused by uninsured or unidentified drivers and also compensates for accidents on the ground (skiing and bicycling), hunting insurance, and mining-related housing damages. - Since 2003 it acquired a role in case of failure of nonlife insurers providing compulsory classes of nonlife insurance (motor vehicle insurance and construction-related damages). - Legal entity under private law; entirely industry-funded by ordinary contributions, the level of which is decided every year on the basis of the financial results of the fund. - Governed by a board of directors (directoire) under surveillance of a Board (conseil de surveillance). The MoF is responsible for its oversight. - FGAP (Fonds de Garantie des Assurances de Personnes) - Covers policyholders in the life insurance industry. - Created in 1999 (Loi 99-532 25 June 1999, art. 68 JORF 29 June 1999), following the failure of a life insurance company a year earlier. - Specific references to FGAP’s role found in Articles 423-1 to 423-8. - Funding: based on the amount of TP (0.05 percent of that amount); half of the contribution is kept on the insurers’ balance-sheet in a segregated account with the FGAP as beneficiary. - The Fund has a committed line from the insurance industry which can be activated upon request, without the intervention of the MoF. - In the event of a failure, the FGAP works closely with the liquidator to ensure sufficient liquidity for repayment of policyholders’ claims; guaranteed amounts are €70,000 per policyholder and €90,000 for bodily harm damages. - FGAP is subrogated to policyholders’ claims against the estate in liquidation to recover any amounts it contributed. - The framework does not envisage the temporary provision of public funds (see EC 6.1). - The framework lacks provisions for granting public support (including temporary public ownership) and bail-in powers. ### Assessment and implications (KA 6) - The resolution framework has no adequate mechanisms to provide funding for insurers under resolution. - The PPSs (FGAO and FGAP) are geared to provide support under liquidation rather than to support resolution actions. - This is consistent with a framework designed to resolve insurers on the notion that they are balance-sheet solvent. - Where temporary public ownership powers exist in other jurisdictions as a last resort, provision should be made to recover any losses incurred by the state from unsecured creditors or, if necessary, the financial system more widely. *Source: 1fraea2019011 - 6.4 Any provision by the authorities for temporary funding should be subject to strict conditions* ### 9.1 For all G-SIFIs, at a minimum, institution-specific cooperation agreements, containing the ### 1fraea2019011 - 9.1 For all G-SIFIs, at a minimum, institution-specific cooperation agreements, containing the ### KA 9 — Institution-specific cooperation agreements (COAG/CMG) - 9.1 Establishes that for all G-SIFIs, institution-specific cooperation agreements containing the essential elements set out in Annex I should be in place between the home and relevant host authorities involved in planning and crisis resolution stages. - Required content of agreements (selected elements listed in 9.1): - (i) Establish objectives and processes for cooperation through the CMGs. - (ii) Define roles and responsibilities pre-crisis (in the RRP phases) and during a crisis. - (iii) Set out process for information sharing before and during a crisis, including sharing with host authorities not represented in the CMG, with clear reference to the legal basis for information sharing and arrangements protecting confidentiality. - (iv) Set out processes for coordination in development of RRPs for the firm, including parent/holding company and significant subsidiaries, branches, and affiliates within scope. - (v) Set out processes for coordination among home and host authorities in resolvability assessments. - (vi) Agreed procedures for the home authority to inform and consult host authorities in a timely manner when there are material adverse developments and before taking significant action or crisis measures. - (vii) Agreed procedures for host authority to inform and consult the home authority in a timely manner when there are material adverse developments and before taking discretionary action or crisis measures. - (viii) Appropriate detail on cross-border implementation of specific resolution measures, including use of bridge institution and bail-in powers. - (ix) Provide for meetings at least annually involving top officials to review robustness of overall resolution strategy for G-SIFIs. - (x) Provide for regular (at least annual) reviews by appropriate senior officials of operational plans implementing resolution strategies. - 9.2 The existence of agreements should be made public; home authorities may publish the broad structure if agreed by parties. - EC 9.1 — Findings: - Legal basis for CMG where the ACPR is home authority: Article L. 311-59 and Article R. 311-24. - The COAG for the only French G-SII was drafted by the ACPR to be fully compliant with relevant KAs and European/national laws. - The COAG is nonbinding, multilateral, facilitates exchange of information, fosters common understanding of resolution strategies, allows coordination/communication, and provides framework for orderly resolution. - Terms on information sharing between CMG members are standard and documented; authorities exchange relevant information to the extent permitted by their laws. - The presence of the COAG has not been publicly disclosed by the ACPR; there are no obstacles to doing so, and the existence of the CMG has been mentioned in the ACPR’s annual report. - EC 9.2 — Findings: - Legal basis for CMG where ACPR is host authority: Article L. 311-60. - ACPR has signed the COAGs of CMGs for which it is a member: Allianz, Aviva, and Generali. - Assessment of KA 9: - The ACPR initiated the COAG for the French G-SII and is signatory of COAGs for all CMG host roles. Given lack of legal impediments, public disclosure of existence of these agreements is recommended. ### KA 10 — Resolvability Assessments - 10.1 Resolution authorities should regularly undertake, at least for G-SIFIs, resolvability assessments evaluating feasibility and credibility of resolution strategies; guidance in I-Annex 3. - 10.2 Resolvability assessments should, in coordination with other authorities, assess: - (i) Extent to which critical financial services and payment/clearing/settlement functions can continue. - (ii) Nature and extent of intra-group exposures and impact if unwound. - (iii) Capacity of firm to deliver detailed, accurate, timely information to support resolution. - (iv) Robustness of cross-border cooperation and information-sharing arrangements. - 10.3 Group resolvability assessments should be conducted by the home authority of the G-SIFI and coordinated within the firm’s CMG, taking into account national assessments by host authorities. - 10.4 Host resolution authorities conducting local resolvability assessments should coordinate with the home authority as much as possible. - 10.5 Authorities should have powers to require measures to improve resolvability (business practice, structure, organization), including segregation of systemically important functions where appropriate. - EC 10.1 — Findings: - ACPR has supervised Axa Group yearly resolvability assessment process since G-SII designation; became requirement after creation of resolution regime for insurers (Article L. 311-59.-I.-2°). - First draft resolution plan adopted in late 2015 (CMGs started in 2013) and included a resolvability assessment section. - Three cycles completed; future exercises to be led by ACPR resolution team with input from Supervision Department. - Resolvability assessment process will be expanded to the other 13 insurers over the €50 billion asset threshold in coming years: first recovery plans expected by July 2019. - Authorities aim to coordinate RRP work for bancassurance groups side-by-side to develop insights for review of resolution plans. - EC 10.2 — Findings: - Analysis and documentation requested by home authorities for resolvability assessments of CMGs where ACPR is host (Allianz, Aviva, Generali) have been provided to respective home authorities. - EC 10.3 — Findings: - Insurance Code (Article L. 311-12 III) provides list of measures resolution college could take if substantial impediments to resolvability are determined. - ACPR powers cover changes to: - (i) business and financial practices (suspension of activities; restricting/forbidding new activities; sale of assets/businesses; review/cancellation/change of service contracts), - (ii) legal and operational structures (modify legal entity/entities and/or operational structure(s) to reduce complexity and force legal/operational separation of critical functions), - (iii) reporting requirements. - Assessment of KA 10: - Legal framework and recent practice regarding resolvability assessments of the only G-SII and three entities where ACPR is host supervisor align with KAs. - Framework includes powers to alter business practices and operational requirements derived from assessments. - Regularity of assessments, once extended to full scope, will yield insights regarding resolvability under different legal frameworks and bancassurer complexity. ### KA 11 — Recovery and Resolution Planning (RRP) - 11.1 Jurisdictions should put in place ongoing RRP process covering domestically incorporated firms that could be systemically significant or critical if they fail. - 11.2 Jurisdictions should require robust and credible RRPs (I-Annex 4 elements) for all G-SIFIs and any other firm home authority assesses could impact financial stability. - 11.3 RRP should be informed by resolvability assessments and reflect firm-specific nature, complexity, interconnectedness, substitutability, and size. - 11.4 Senior management responsible for providing necessary input to resolution authorities for assessment of recovery plans and preparation of resolution plans. - 11.5 Recovery plans should identify options to restore financial strength and include: - (i) Credible options for range of scenarios (idiosyncratic and market wide). - (ii) Scenarios addressing capital shortfalls and liquidity pressures. - (iii) Processes to ensure timely implementation of recovery options. - 11.6 Resolution plan should include substantive resolution strategy and operational plan and identify: - (iv) Financial/economic functions for which continuity is critical. - (v) Suitable resolution options to preserve or orderly wind down those functions. - (vi) Data requirements on business operations, structures, and systemically important functions. - (vii) Potential barriers to effective resolution and mitigation actions. - (viii) Actions to protect insured depositors and insurance policyholders and ensure rapid return of segregated client assets. - (ix) Clear options/principles for exit from resolution process. - 11.7 Firms required to ensure key service level agreements can be maintained in crisis and include provisions preventing termination triggered by recovery or resolution events, facilitating transfer to bridge institution or third-party acquirer. - 11.8 For G-SIFIs, home resolution authority should lead group resolution plan development in coordination with all CMG members; host authorities should be given access to RRPs and relevant information. - 11.9 Host resolution authorities may maintain local resolution plans cooperating with home authority to ensure consistency. - 11.10 RRPs should be updated regularly, at least annually or when material changes occur, and subject to regular CMG reviews. - 11.11 Substantive resolution strategy for each G-SIFI should be subject, at least annually, to review by top officials of home and relevant host authorities and, where appropriate, involve the firm’s CEO; operational plans should be reviewed at least annually by appropriate senior officials. - 11.12 If authorities are not satisfied with a firm’s RRP, they should require measures to address deficiencies with prior consultation between relevant home and host authorities. - EC 11.1 — Findings: - Recovery and resolution framework currently subjects 14 insurers (including one G-SII) to RRP requirements; except for the G-SII, requirements are in implementation. - Identification follows framework rule (see EC 1.1). Entities listed subject to RRP include: - Axa Group. - CNP Group. - Covea Group. - Groupama Group. - AG2R-La Mondiale Group. - Allianz France Group (subgroup of Allianz). - Aviva France Group (subgroup of Aviva). - Generali France Group (subgroup of Generali). - BNP Paribas Assurances Group (subgroup of BNP Paribas). - SOGECAP Group (subgroup of Société Générale). - Crédit Agricole Assurances Group (subgroup of Crédit Agricole). - Natixis Assurances Group (subgroup of BPCE). - GACM (subgroup of Crédit Mutuel - CM11). - Suravenir (subsidiary of Crédit Mutuel - Arkea). - Note: AG2R-La Mondiale-Matmut Group, since January 1, 2019. - ACPR will begin RRP process in 2019 for the 13 insurers newly subject to requirements. - ACPR estimates each insurer will employ approximately 2–3 FTEs to develop an initial recovery plan; synergies expected with ORSA and Solvency II work. - EC 11.2 — Findings: - Rule used to identify insurers based on asset size was calibrated to include entities considered important by ACPR. - No proportionality criteria in framework; ACPR may require RRPs from insurers presenting specific risk or providing critical functions beyond asset size. - EC 11.3 — Findings: - Insurance Code establishes recovery plans are subject to review and validation by insurers' board of directors (Article L. 311-5). - Recovery plans expected to be reviewed/updated every two years at a maximum, and sooner in event of material changes (for a period not exceeding 6 months) (Article A. 311-2 and A. 311-3). G-SIIs expected to review annually. - Supervisory college of ACPR assesses recovery plans. Process for the G-SII: - Plan developed under chief risk officer; discussed at risk committee; discussed by Comité de Direction; reviewed at financial sub-committee; reviewed/approved by full board; submitted to ACPR. - ACPR supervisory team analyzes plan; reviewed by director of insurance supervision and first deputy secretary general; supervisory college review launched. - Framework gives ACPR up to six months for completion of recovery plan review. Four months after submission, results must have been endorsed by the Supervisory College to proceed with supervisory dialogue. - If plan has significant shortcomings, insurer must submit revised plan within two months from supervisory notification (Article 311-6). Continued shortcomings may lead to measures from risk reduction to recapitalization. - EC 11.4 — Findings: - Article A. 311-3 requires recovery plans to include elements set out in EC 11.4, including: - List of critical functions and interconnected activities with analysis of capacity to externalize/separate activities. - Measures for operational continuity (infrastructure, IT systems, communication with customers/intermediaries). - Systemic and idiosyncratic crisis scenarios designed by insurer with impact assessment on economic and financial stability. - Definition of indicators measuring financial, liquidity, solvability situation with thresholds aligned with insurer risk appetite triggering recovery governance and defined decision processes. - Options/measures to preserve/recover financial viability and reduce exposure to risk with estimations of expected impact and timing. - Analysis of potential limits of recovery options and impacts on customers, intermediaries, and financial stability. - These requirements are set out by Arrêté and are in line with the law; implementation by systemic institutions is underway. As Resolution Department manages successive assessment cycles, key insights may prompt regulatory evolution. - EC 11.5 — Findings: - Framework sets broad requirements for resolution plan contents (Article L. 311-8) and an Arrêté by the MoF details minimum content expectations. - Resolution plans shall: - Identify critical functions and critical shared services. - Describe resolution strategies and operational plan ensuring feasibility (e.g., which holding/intermediate holding company would serve as point of entry in an SPE plan). - Assess overall resolvability of the insurer (Article L. 311-6 specifies aspects to be assessed). - Implementation phase for this aspect of framework has yet to begin. *Source: 1fraea2019011* ### 2020. ACPR is currently building the team that will be in charge of this task. ### 1fraea2019011 - 2020. ACPR is currently building the team that will be in charge of this task. ### Resolution planning, governance, and operational continuity (EC 11 series) - EC 11.6 — Process for review and agreement of substantive resolution strategy for a G‑SII: - The COAG of the CMG for the French G‑SII and the annual working program for CMGs call for members to regularly review the resolution strategy and provide a formal opinion by top officials on the strategy embedded in the resolution plan. - EC 11.7 — Ensuring operational continuity of critical functions: - The resolution authority has the power to require insurers to include measures and provisions in Service Level Agreements to “... to ensure the continuity of the rights and commitments related to the transferred activity.” (See EC 3.6). - The French G‑SII does not have direct access to FMIs. - EC 11.8 — Frequency and triggers for review/update of resolution plans: - Article A.311-2 II mandates that the Resolution College shall update the resolution plans after each update of the recovery plans. - For the only G‑SII, the recovery and resolution process is annual. - For the remaining 13 insurers covered by the recovery and resolution framework, the cycle is biennial, starting with the submissions of the first recovery plans in July 2019. - ACPR has the power to require more frequent updates in case of an important change of the activities or the risk profile of the insurer. - EC 11.9 — Cross‑border cooperation and information sharing to support RRP: - Framework references: Articles L. 311-57, L. 311-58, L. 311-59, and R. 311-22, R. 311-23 and R. 311-24. - ACPR may involve host resolution authorities (without distinction) in the development and maintenance of recovery and resolution plans; practiced for the French G‑SII. - The authorities are in the process of identifying groups for which cross‑border cooperation in the form of a dedicated Resolution College would be relevant, taking into account the size, complexity and impact of cross‑border activities. - Article R. 311-24 provides that the Resolution College shall determine the functioning of the college of competent equivalent authorities provided for in Article L. 311-59 II, including detailed terms and procedures, informing members of meetings, inviting observers, and ensuring the adequacy of the composition of the college with the topics on the agenda. - Article R. 311-23 requires cooperation agreements concluded with competent supervisory authorities or resolution authorities to be authorized by the Supervisory College or Resolution College. - A main constraint is the need for adequate treatment of confidential information; Article R. 311-22 requires assessment of potential effects of disclosing information and that assignees, transferee candidates, trustees and bridge institutions have procedures to limit disclosure risk. ACPR evaluates these factors prior to engagement. - EC 11.10 — Group‑wide resolution strategy for a G‑SII and CMG access to RRPs: - Framework is fully aligned (see EC 11.9). - For the French G‑SII, a CMG has been set up and ACPR held 14 physical meetings dedicated to discussing recovery and resolution plans of the group. - EC 11.11 — Cooperation with authorities in jurisdictions where the G‑SII has systemic presence but are not CMG members: - Framework incorporates criteria of cooperation with authorities from other jurisdictions (see EC 11.9). - Practice to cooperate with host authorities is established for CMGs (see EC 8.2); process still needs further development in resolution planning. - A key constraint is the lack of a resolution framework in many host jurisdictions. - EC 11.12 — Coordination where ACPR is host authority and maintains local resolution plans: - Article L. 311-60 provides that for entities of a group where the ultimate parent undertaking is established outside France, the ACPR cooperates with the relevant counterpart authorities. - ACPR may participate in colleges and enter into coordination arrangements; cooperation agreements must be authorized by the relevant College (Article R. 311-23). - Article R. 311-22 requires assessment of disclosure effects and safeguards for assignees, transferee candidates, trustees and bridge institutions. - ACPR will develop its own resolution plans for hosted subsidiaries (Allianz, Aviva, and Generali, though Generali is no longer classified as a G‑SII), ensuring consistency with group plans. - Article L. 311-5 I provides for exemption from recovery planning requirements of subsidiaries of foreign insurers that are captured by the group plans under certain conditions. - EC 11.13 — Annual coordination and review by CMG participants and senior officials for a G‑SII: - For the only French G‑SII, the COAG includes an annual review by senior officials’ clause; senior officials sign the COAGs and review them as often as deemed necessary, via written procedure. - EC 11.14 — Authority powers to require measures to address deficiencies in recovery plans and to furnish resolution plans: - Article L. 311-6 foresees these requirements (see EC 11.3). - In case of material deficiencies in the recovery plan, ACPR can require an insurer to resubmit the plan, request changes in the risk profile on recovery measures, and on the ability to restore the financial soundness of critical functions or core business lines. - Article L. 311-8 II mandates insurers to provide any information necessary to develop and maintain resolution plans. ### Assessment of KA 11 (Recovery and Resolution Planning) - Summary assessment: - The recovery and resolution framework is overall well aligned with KAs for RRP. - Implementation phase ongoing: several components of RRP have yet to be established in detailed regulations, manuals, and general guidance from the ACPR. - With recovery planning just beginning for 13 insurers, the anticipated frequency of updates for non‑globally systemic insurers is expected to be biennial rather than annual as envisaged under the KA. ### Access to information and information sharing (KA 12) - KA 12.1 — Legal/regulatory/policy permissions for exchange of information for RRP: - Jurisdictions should ensure sharing of all information relevant for RRP and resolution is possible in normal times and during a crisis domestically and cross‑border. - KA 12.2 — Firms required to maintain Management Information Systems (MIS): - Firms should maintain MIS capable of producing essential information promptly (example target: 24 hours) at group and legal‑entity level; maintain inventories of key MIS; identify exogenous legal constraints; maintain entity‑level information including intra‑group guarantees and back‑to‑back trades. - EC 12.1 — Resolution authority powers to access insurer information: - Legal framework establishes powers to access information required for resolution. - For resolution purposes, the Resolution Department can request offsite information directly (see EC 2.7); onsite inspection takes place via the Supervision Department staff. - EC 12.2 — Legal gateways for disclosure to domestic and foreign authorities: - ACPR can exchange information with any foreign authority once an assessment of confidentiality requirements has been completed. - Relevant references: Articles L. 311-56 and L. 311-57 (for European stakeholders), and Articles L. 632-7, L. 632-13 and L. 632-15 of the MFC (for third country authorities). - EC 12.3 — Safeguards to protect confidentiality of nonpublic information: - Article L. 612-17 of the MFC: general principle of professional secrecy; any person who participates (or has participated) in tasks mandated by the ACPR is bound by professional secrecy. - Article L. 311-26: persons who have directly or indirectly contributed to resolution tasks in insurance, including potential acquirers or beneficiaries, shall be bound by professional secrecy. - Violation of professional secrecy may lead to imprisonment and fines under the Criminal Code. - Article L. 632-1 A: information received by ACPR from EEA or third country supervisory authorities cannot be disclosed to third parties without the express prior consent of the providing party and solely for the purposes it has agreed to. - EC 12.4 — Internal controls on dissemination of foreign nonpublic information: - Quality and Methods Department is dedicated to review and verification of document classification and usage; its mandate includes control and monitoring of dissemination within the authority. The Resolution Directorate was recently assessed. - EC 12.5 — Insurer MIS capabilities for RRP: - ACPR has a dedicated supervisory team conducting onsite reviews of management information systems. - Several reviews occurred in the context of Solvency II implementation (see EC 12.6). - EC 12.6 — Processes to test insurers’ ability to produce RRP information in timely manner: - Planning requirements have not been tested yet; there is no obligation in the framework to perform testing. - Resolution‑related processes could be included in the general supervisory testing program (e.g., Data Quality Framework). - Insurers have been subject to granular and high frequency reporting for the last 20 years as part of Solvency I requirements, reflecting a sophisticated development of IT systems that will support RRP. ### Assessment of KA 12 (Access to Information and Information Sharing) - Summary assessment: - The framework is well aligned with the KAs on information access and sharing. - Testing would be warranted in the area of information sharing for RRP. *Source: 1fraea2019011 - 2020. ACPR is currently building the team that will be in charge of this task.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1fraea2019011.pdf_