FSB updates insurance resolution assessment methodology

The updated methodology incorporates a revised definition of a 'critical function' for insurers, initially added to the August 2020 version.

This new definition specifies three elements: the function must be provided to unaffiliated third parties, its sudden failure would materially impact the financial system or real economy, and it cannot be substituted within a reasonable time and cost.

This clarification is crucial for identifying insurers whose failure could pose systemic risks and for developing effective resolution strategies.

The broader Key Attributes, adopted in 2011 and endorsed by the G20, apply to all systemically significant financial institutions, including banks, insurers, and financial market infrastructures.

This document provides the sector-specific interpretation for the insurance industry.

The methodology guides jurisdictions in assessing their compliance with the Key Attributes for the insurance sector.

It details essential criteria, explanatory notes, and a four-grade assessment scale that considers proportionality.

The assessment requires access to information and stakeholders to formulate recommendations and action plans.

Key areas covered include the scope of resolution regimes, the powers of resolution authorities, funding mechanisms for firms in resolution, and legal frameworks for cross-border cooperation.

It also addresses resolvability assessments and recovery and resolution planning requirements, ensuring a comprehensive approach to financial stability.