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🏛️ '''Resolution plan''' is a structured framework, often mandated by regulators, that sets out how an [[Definition:Insurance carrier | insurance company]] or [[Definition:Insurance group | insurance group]] would be wound down, restructured, or transferred in an orderly fashion if it were to become non-viable. Sometimes referred to informally as a "living will," the resolution plan emerged as a key post-financial-crisis regulatory tool after the near-collapse and taxpayer-funded rescue of major [[Definition:Systemically important financial institution (SIFI) | systemically important]] insurers demonstrated that the failure of large, interconnected firms could cascade across financial markets and leave [[Definition:Policyholder | policyholders]] unprotected.

⚙️ The plan typically maps out the insurer's legal entity structure, identifies critical functions — such as claims payment, [[Definition:Reinsurance | reinsurance]] recoveries, and policy administration — and establishes strategies for maintaining or transferring those functions during distress. In the United States, the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] has long operated state-based [[Definition:Guaranty association | guaranty association]] systems and [[Definition:Receivership | receivership]] frameworks, and more recently developed guidance for group-level resolution planning aligned with the [[Definition:International Association of Insurance Supervisors (IAIS) | IAIS]] standards for [[Definition:Globally systemically important insurer (G-SII) | globally systemically important insurers]]. In Europe, [[Definition:Solvency II | Solvency II]] incorporates recovery and resolution considerations, and the European Commission has advanced proposals for a formal insurance resolution directive. Jurisdictions like the United Kingdom, through the [[Definition:Prudential Regulation Authority (PRA) | PRA]], and Hong Kong, through the [[Definition:Insurance Authority (IA) | Insurance Authority]], have also enhanced their resolution planning expectations. A robust plan addresses scenarios ranging from gradual deterioration — triggered, for example, by prolonged adverse [[Definition:Reserve | reserve]] development — to sudden catastrophic loss events, and it must account for cross-border complications when the insurer operates across multiple jurisdictions.

💡 Without a credible resolution plan, a failing insurer risks a chaotic unwind that harms policyholders, destabilizes markets, and may force governments into politically costly bailouts. The 2008 experience with [[Definition:American International Group (AIG) | AIG]], whose complex web of [[Definition:Credit default swap | derivative]] exposures and global subsidiaries made an orderly resolution nearly impossible, catalyzed worldwide attention to this gap. Resolution planning forces senior management and boards to confront uncomfortable questions about separability of business units, adequacy of [[Definition:Liquidity | liquidity]] under stress, and the operational feasibility of transferring [[Definition:Insurance portfolio | insurance portfolios]] to solvent carriers. For the broader market, these plans strengthen confidence that policyholder obligations will be honored even if the original insurer cannot survive, thereby reinforcing trust in the industry's fundamental promise.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Receivership]]
* [[Definition:Guaranty association]]
* [[Definition:Solvency II]]
* [[Definition:Globally systemically important insurer (G-SII)]]
* [[Definition:Run-off]]
* [[Definition:Own risk and solvency assessment (ORSA)]]
{{Div col end}}

Definition:Resolution plan - Revision history

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