Definition:Recovery and resolution plan
🏛️ Recovery and resolution plan is a structured framework that an insurance company or insurance group prepares — often at regulatory direction — to identify credible options for restoring financial viability under severe stress (recovery) and for executing an orderly wind-down if recovery proves impossible (resolution). Sometimes called a "living will," the concept migrated from banking supervision after the 2008 financial crisis and has been adapted for insurance by the IAIS, the NAIC, and various national supervisors who oversee systemically important or large complex insurers.
⚙️ On the recovery side, the plan catalogues available levers — such as selling renewal rights, commuting reinsurance treaties, suspending dividends, raising fresh capital, or shedding unprofitable lines of business — and models the financial impact of each under defined stress scenarios. The resolution component maps the legal-entity structure, identifies critical policyholder services and claims-payment functions, and establishes protocols for portfolio transfer, run-off, or liquidation while minimizing disruption to policyholders and the broader market. Regulators often require the insurer to demonstrate that key data, IT systems, and operational capabilities can be separated or maintained independently during a resolution event.
🔑 For the insurance industry, these plans serve a dual purpose. They reassure supervisors and the public that even a large insurer's failure would not leave policyholders stranded or destabilize financial markets. Equally important, the planning process itself forces senior management and boards to confront tail risks, stress-test enterprise risk management assumptions, and ensure that governance structures support rapid decision-making in a crisis. As the IAIS continues refining its Insurance Capital Standard and ComFrame guidance, recovery and resolution planning is becoming an embedded expectation for internationally active insurance groups worldwide.
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