The EU Insurance Winding-Up Directive has recently been implemented by Irish legislation (SI No 168 of 2003). This legislation applies to reorganization measures adopted or winding up proceedings commenced on or after April 29 2003 and, subject to certain exemptions, requires EU member states to recognize reorganizations and winding-up proceedings of insurers authorized in other EU member states even where such proceedings are dealt with differently by domestic law.
Absolute priority is accorded to policyholder claims over all other claims against an insurer when distributing the insurer's technical reserves on insolvency. There is an existing requirement (in the Life and Non-Life Framework Regulations 1994) to maintain a register of all assets representing the technical reserves. The new legislation goes further by specifying that the total value of all assets recorded in the register cannot at any time be less than the amount of the technical reserves and that where assets that are listed on the register are subject to a right in rem (such as a lien or a mortgage) these cannot be included in the register as to that part which is unavailable for discharging policyholder claims. It should also be noted that the legislation provides that other rights such as reservations of title in favour of creditors or third parties or rights of set-off must be disregarded on an Irish insurance winding-up, except where those rights do not apply to Irish assets of the insurer.
Third parties dealing with insurance undertakings will need to closely scrutinize security rights taken over certain assets of that insurer as, depending on the nature of those rights, they may be farther down the insurance undertaking's queue of creditors than bargained for.