The Financial Market Guarantee System is to administer a New Fund for the Resolution of Insurance and Reinsurance Undertakings

The draft Act on the recovery and resolution of insurance and reinsurance undertakings, submitted to the Government by the Ministry of Finance, provides for the establishment of a new Fund for the Resolution of Insurance and Reinsurance Undertakings (Insurance Resolution Fund). The Financial Market Guarantee System is to be entrusted with its administration.

The new legislation transposes the European Insurance Recovery and Resolution Directive (IRRD) into Czech law and introduces rules for addressing the potential failure of insurance and reinsurance undertakings. The Czech National Bank will act as the resolution authority and will also be responsible for determining contributions to be made by the insurance and reinsurance undertakings to the Fund and deciding on the use of its resources. The Financial Market Guarantee System will administer the Fund, collect contributions and ensure the investment of its resources.

Under the draft legislation, the Fund’s target level is to correspond to 20% of the total minimum capital requirement of insurance and reinsurance undertakings and is to be reached within ten years. According to estimates by the Ministry of Finance, this would amount to approximately CZK 5 billion. Up to 70% of regular contributions may be made in the form of irrevocable payment commitments secured by cash or Czech government bonds.

“The Financial Market Guarantee System has many years of experience in administering funds designed to safeguard the stability of the financial market. We consider using our existing expertise and operational infrastructure to administer the new Fund to be an efficient solution. We are now preparing to ensure that we are ready to properly perform our new responsibilities once the Act enters into force,” says Renáta Kadlecová, Managing Director of the Financial Market Guarantee System.

The new Fund will complement the Deposit Insurance Fund and the Crisis Resolution Fund for banks, both of which are already administered by the Financial Market Guarantee System. Its resources will be used exclusively to finance measures provided for by law in connection with the resolution of an insurance or reinsurance undertaking. Regular contributions will begin to be collected in the first full contribution cycle following the promulgation of the Act; the exact timing will therefore depend on the completion of the legislative process.

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