Resolution mechanism for insurers unveiled

The Bank of Russia brings into use an insurer resolution mechanism, intended to stave off insurers’ bankruptcies with potential social repercussions or systemic problems in the insurance sector, both on federal and regional levels. The relevant law was passed by the State Duma on 12 March.

‘The overall resolution mechanism for insurers will be similar to the time-tested resolution framework for banks. One and the same management company will supervise both banks and insurance companies, while there will be two separate resolution funds. We are essentially establishing a prevention tool – which will help secure sustainable operations of an insurance company under resolution. This also covers insurance payout processes and, importantly, the interests of consumers of insurance services will be guaranteed’, BoR Deputy Governor Vladimir Chistyukhin noted.

A decision to apply the resolution mechanism will be made by the Bank of Russia Board of Directors.

The new law also includes several regulatory innovations intended to unify the supervisor's remit across various segments of the financial market. In particular, the law confers on the Bank of Russia the right to revoke an insurance licence in cases where the organisation commits, within a year, multiple and substantial (amounting to over 20%) violations of financial stability requirements. The superseded insurance laws set forth a longer licence revocation procedure in this case, whereby a licence is initially suspended or limited. The law further introduces a new supervisory response measure: a ban / limitation on certain transactions, securities and derivatives transactions.

The regulatory updates are overall based on the five years of supervisory practice.