The Act on the Recovery, Resolution and Supervisory Amendments for Insurance Undertakings (Versicherungs-Sanierungs-Abwicklungs-und-Aufsichtsänderungs-Gesetz, “VSAAG”, Federal Law Gazette (BGBl.) 2026 I No. 275), promulgated on 30 September 2026, establishes a comprehensive recovery and resolution regime for insurance undertakings in Germany for the first time. The legislation confers far-reaching new powers on the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “Bafin”) and imposes significant obligations on insurance undertakings. At its core is the transposition of Directive (EU) 2025/1 (“IRRD”) through the newly enacted Insurance Recovery and Resolution Act (Versicherungs-Sanierungs-und-Abwicklungs-Gesetz, “VSAG”). In addition, Directive (EU) 2025/2 amending the Solvency II Directive 2009/138/EC is transposed into the Insurance Supervision Act (Versicherungsaufsichtsgesetz, “VAG”), the insurance guarantee schemes (Sicherungsfonds) are reorganised and consequential amendments are made to other statutes. The VSAAG’s core provisions will apply from 30 January 2027, whereas the reorganisation of the insurance guarantee schemes will already take effect on 29 January 2027. Affected insurers need to take action now.
Background and overview
With the VSAAG, the legislature has created a new regulatory framework that goes significantly beyond existing supervisory powers under the VAG. The centrepiece is the VSAG, which grants Bafin, as the future resolution authority, extensive powers to resolve an insurance undertaking that is failing or likely to fail. Insurance undertakings selected by Bafin will now have to draw up their own pre-emptive recovery plans, cooperate in the preparation of resolution plans by Bafin and, on Bafin’s instruction, implement measures to ensure resolvability even during ongoing operations. The regulatory framework for insurance undertakings is thus converging with that for banks, for which a comparable regime already exists in the form of the Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz, “SAG”). The VSAG explicitly refers to the SAG in several places and declares SAG standards to be applicable accordingly, meaning that Bafin’s interpretation and administrative practices regarding the SAG are likely to become relevant for insurers as well. In addition, a new single resolution fund covering all lines of insurance business will be established under Bafin’s administration. Bafin’s dual role as supervisory and resolution authority will thus be extended to the insurance sector.
Beyond this, the VSAAG introduces further practically relevant amendments to the VAG, in particular implementing the Solvency II Review: a new category of “small and non-complex undertakings”, which, once classified as such, may benefit from statutory simplifications without the need for separate approval, the split of the solvency and financial condition report (SFCR) into two parts (including a dedicated section for policyholders), new requirements regarding sustainability risk management, liquidity risk management and diversity of governing bodies, adjustments to group supervision and cross-border cooperation. A reorganisation of the insurance guarantee schemes is added as a national measure.
The following sections summarise the most important developments for practitioners.
Affected insurers
The VSAG applies to insurance and reinsurance undertakings established in Germany that fall within the scope of Solvency II, to parent insurance and reinsurance undertakings, to insurance holding companies and mixed financial holding companies (including parent holding companies), and to German branches of third-country insurance undertakings (Union branches). However, Bafin’s selection of the insurance undertakings subject to specific requirements of the VSAG is governed by the principle of proportionality.
Whether an insurance undertaking is affected depends in particular on the following factors:
- Size and market significance: Bafin must ensure that at least 60% of the German life insurance and reinsurance market and at least 60% of the non-life insurance and reinsurance market are subject to pre-emptive recovery planning requirements. Resolution plans must be drawn up for at least 40% of the respective markets; every undertaking for which a resolution plan is drawn up is also subject to pre-emptive recovery planning.
- Risk profile and business model: Complex business models, interconnectedness, high importance for the economy, and significant cross-border activities increase the likelihood that Bafin will include the undertaking in recovery and resolution planning.
- Substitutability and critical functions: Undertakings whose insurance functions are difficult to replace in the market are more likely to be affected.
- Group structure: Insurance groups with complex internal interconnections, cross-border structures or centralised services are more likely to be particularly impacted.
- Status as a small and non-complex undertaking: Such undertakings are generally exempt from pre-emptive recovery planning and resolution planning. However, they may be subject to regulation by BaFin if, in BaFin’s view, they pose a particular risk at national or regional level.
Practical note: Even undertakings that consider themselves “small and non-complex” should assess whether Bafin might nonetheless include them on the basis of a particular risk profile. An early impact assessment is therefore recommended for every insurance undertaking.
What obligations does the VSAG create?
The VSAG essentially creates two new areas of obligation for affected undertakings: pre-emptive recovery planning and cooperation in resolution planning.
Pre-emptive recovery planning
Insurance undertakings that are asked by Bafin to prepare a pre-emptive recovery plan must submit it within a maximum of six months; upon application, Bafin should extend this deadline by up to a further six months. For insurance groups, the group supervisor may require the ultimate parent undertaking to prepare a pre-emptive recovery plan subject to essentially the same requirements; subsidiary undertakings will then generally no longer need to prepare a plan of their own. Structurally, the requirements for pre-emptive recovery plans are modelled after the requirements for recovery planning for banks under the SAG; groups that include a banking division can therefore draw on existing structures.
The pre-emptive recovery plan must contain in particular:
- a range of remedial actions available to the undertaking;
- a framework of quantitative and qualitative indicators that identify the points at which remedial actions should be considered or taken;
- a description of how the pre-emptive recovery plan has been drawn up, how it will be updated, and how it will be applied; and
- a communication strategy.
The plan must not assume any extraordinary public financial support. The undertaking must assess the credibility and feasibility of the pre-emptive recovery plan against a range of scenarios of severe macroeconomic and financial stress relevant to its specific conditions, including system-wide events, idiosyncratic events and combinations of both. In addition, regular monitoring of the established indicators for activating the plan must be ensured. Where an indicator is met, Bafin must be notified without undue delay of the response, i.e. whether remedial action contained in the plan is being taken or not.
The pre-emptive recovery plan must be updated at least every two years or, where necessary, sooner, and must be submitted to Bafin for review on each occasion. If Bafin identifies material deficiencies in the plan or material impediments to its implementation, the undertaking must submit a revised plan within two months (extendable by one month upon application). If the deficiencies are not adequately remedied thereby, Bafin may instruct the undertaking to make specific changes to the plan. If this is not sufficient, the undertaking must first itself identify possible changes to its business activities; only if this also fails may Bafin order measures within the undertaking itself.
The pre-emptive recovery plan is an integral part of the business organisation within the meaning of section 23 VAG and must be assessed and approved by the management board before it is submitted. Responsibility therefore rests with the management board. Failure to prepare, update or apply the pre-emptive recovery plan can constitute a deficiency in the business organisation which may result in supervisory measures against management board members, up to and including removal from office, and potential personal liability of officers under general corporate law. In addition, non-compliance with an enforceable order to submit a recovery plan and breaches of the updating obligation are subject to administrative fines of up to EUR 5 million or, for legal entities with a total turnover of more than EUR 50 million, up to 10% of total turnover; where the economic benefit derived from the breach can be quantified, the fine may amount to up to twice that benefit.
Cooperation in resolution planning
Resolution plans are drawn up by Bafin as resolution authority. However, affected undertakings may be required to cooperate and provide information, in particular on:
- critical insurance functions and their substitutability;
- separability of business lines;
- intra-group financing and service agreements;
- dependencies (IT, personnel, outsourcing); and
- communication structures and staff-related aspects.
If Bafin identifies substantial impediments to resolvability, the undertaking must, within four months, propose measures to address or remove them (no extension of this deadline is provided for). If these measures are insufficient, Bafin may require the undertaking to take alternative measures; the undertaking must then submit, within one month, a plan to comply with them. The possible measures are significant and range from changes to intra-group agreements and the restriction of certain business activities to changes to the legal or operational structure, the divestment of assets and the establishment of a parent insurance holding company.
What happens in a resolution scenario?
In a resolution scenario, Bafin has at its disposal wide-ranging tools that permit significant interventions in the corporate structure. The resolution tools are, in part, modelled after banking resolution law; in some places, the VSAG refers directly to the SAG:
- Solvent run-off tool: cessation of new business and solvent run-off of the existing insurance portfolio.
- Sale-of-business tool: transfer of shares or assets, liabilities and insurance portfolios on commercial terms to a purchaser – without the consent of shareholders or policyholders.
- Bridge undertaking tool: transfer to a Bafin-controlled bridge undertaking to maintain critical functions; this may also be an insurance guarantee scheme.
- Asset and liability separation tool: transfer of assets and liabilities to a Bafin-controlled asset management vehicle (only in combination with another resolution tool).
- Write-down or conversion tool: write-down of capital instruments and eligible liabilities, including insurance claims, or their conversion into shares or Tier 1 own funds; the terms of the insurance contracts concerned may also be restructured. The conversion of insurance claims is only permissible where the resolution objectives cannot be achieved through other resolution tools or where conversion would better protect policyholders.
- Ancillary powers, such as the temporary suspension of contractual obligations and of termination rights, the temporary restriction or suspension of policyholders’ redemption rights under life insurance contracts and the appointment of a special manager; in addition, the involvement of the insurance guarantee schemes and financing through the resolution fund.
Resolution requires cumulatively that the undertaking is failing or likely to fail, there is no reasonable prospect that alternative private-sector or supervisory measures, including preventive and corrective measures, would prevent the failure within a reasonable timeframe, and resolution is in the public interest. A public interest exists only where resolution, in order to achieve one or more resolution objectives, is necessary and proportionate and those objectives would not be met to the same extent in normal insolvency proceedings – taking into account the possibility of portfolio transfers to insurance guarantee schemes under the VAG. The resolution objectives are the protection of the collective interests of policyholders, beneficiaries and claimants, the maintenance of financial stability, ensuring the continuity of critical functions and the protection of public funds. The no-creditor-worse-off principle – known from bank resolution under the SAG – also applies: shareholders and creditors – including policyholders – must not incur greater losses as a result of the resolution than they would have in normal insolvency proceedings; otherwise, they are entitled to compensation from the resolution fund.
If the insurance undertaking is part of a financial conglomerate, in the event of a crisis, the supervisory and resolution authorities also notify the resolution authority under the SAG as well as the banking supervisory authority (section 133 VSAG); conversely, the insurance resolution authorities are involved in the exchange of information and in resolution colleges under the SAG.
Further changes introduced by the VSAAG
The VSAAG also introduces the following changes:
- Resolution fund: A new single resolution fund covering all lines of insurance business will be established under Bafin’s administration to compensate shareholders and creditors who are placed in a worse position as a result of the resolution than they would have been in ordinary insolvency proceedings, and to finance resolution actions. Before the fund may be used, losses must first be borne by shareholders and creditors, available resources of the insurance guarantee schemes must be utilised, and liabilities arising from life insurance contracts must be written down by up to 5% of the guaranteed benefits. A contribution obligation for all German insurance undertakings and branches of third-country undertakings in Germany arises only when needed.
- Insurance guarantee schemes: The insurance guarantee scheme structure is being expanded by establishing a new guarantee scheme for property and casualty insurance. Membership of a guarantee scheme is, in principle, mandatory for undertakings authorised to conduct business in the insurance classes listed in Annex 1, nos. 1 to 23 to the VAG, with the exception of pension funds (Pensionskassen) and funeral expense funds (Sterbekassen); mandatory members of the new property and casualty guarantee scheme are undertakings authorised in the classes listed in Annex 1, nos. 1 and 3 to 18 to the VAG. For the life insurance guarantee scheme (Protektor), the ceiling for annual special contributions is raised from 1 to 5 per mille of net technical provisions; for the health insurance guarantee scheme it is 3 per mille and for the new property and casualty guarantee scheme 1% of gross written premiums.
- Small and non-complex undertakings: A new category of “small and non-complex undertakings” is introduced. Insurance undertakings that, based on a self-assessment, conclude that they fall within this category may notify Bafin, which may reject the classification within two months of receiving the complete notification; otherwise the undertaking is deemed to be classified as small and non-complex. The refusal may only be issued if one of the classification criteria laid down in section 15b VAG is not met, the Solvency Capital Requirement is not complied with, or the insurance undertaking holds a share of more than 5% of the domestic life or non-life insurance market. During a transitional period, the deadline is four months if the notification is received by Bafin within six months after 30 January 2027. Small and non-complex undertakings may independently use the proportionality measures now provided for at various points in the VAG and VSAG. Other insurance undertakings may only do so for selected proportionality measures and only with individual approval from Bafin.
- Solvency and financial condition report (SFCR): The report will in the future consist of two parts, clearly identified and disclosed jointly, one of which is specifically targeted at policyholders and beneficiaries. The deadline for publication is extended from 14 to 18 weeks after the end of the financial year.
- Volatility adjustment: Existing approvals continue to apply from 30 January 2027 only if the new requirements are met; otherwise the undertaking must notify Bafin and the approval is to be revoked.
- Sustainability risks: In future, specific sustainability risk plans must be developed as part of risk management, and climate change scenarios must be taken into account in the own risk and solvency assessment (ORSA).
- Liquidity risk management: Insurance undertakings will be required to prepare and update a liquidity risk management plan and to submit it to Bafin annually within the first 16 weeks of the financial year; small and non-complex undertakings and undertakings approved to use proportionality measures are exempt.
- Diversity requirements: Insurance undertakings must put in place a policy to promote diversity on the management board and the supervisory board, including the setting of individual quantitative objectives with regard to gender balance.
- New supervisory powers for macroprudential measures: BaFin may, in the event of significant liquidity risks, temporarily restrict distributions, share buy-backs and variable remuneration and, as a measure of last resort, suspend policyholders’ surrender rights under life insurance contracts. In periods of exceptional sector-wide shocks, it may also impose measures aimed at safeguarding the financial position of undertakings with particularly vulnerable risk profiles.
- Strengthening of group supervision: Ultimate parent undertakings must submit an annual regular supervisory report at group level to the group supervisor no later than 24 weeks after the end of the financial year; the frequency may be reduced to every two or three years. The group supervisor may order measures up to and including a restructuring of the group – such as the establishment of an insurance holding company – to facilitate effective group supervision.
- Cross-border activities: The scope for cooperation between national regulators is being expanded.
- New levy in the Act establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz, “FinDAG”): The VSAAG introduces a new annual cost levy for Bafin’s insurance resolution function, payable by all domestic in-scope insurers and Union branches and based on earned gross premiums (subject to a minimum of EUR 325); it applies for the first time to the 2027 levy year.
How will cooperation with Bafin change?
The VSAG transforms the relationship between insurance undertakings and Bafin:
- New dual role of Bafin: Bafin will become the resolution authority in addition to its role as supervisory authority. In its capacity as resolution authority, it will in the future perform the tasks specified in the SAG and VSAG with operational independence from ongoing supervisory tasks. Conflicts of interest between the supervisory and resolution functions must be avoided through structural arrangements; at the same time, however, both functions must cooperate closely. For undertakings, this will in the future mean two points of contact within Bafin with different mandates.
- Closer cooperation: Bafin will acquire far-reaching new powers in both roles (supervision and resolution). Insurance undertakings will consequently have to cooperate even more closely with Bafin in the future. In particular, meeting the cooperation and information obligations in resolution planning will require continuous dialogue.
- Proactive communication expected: Bafin will approach undertakings to request pre-emptive recovery plans and the information it needs to draw up resolution plans. It is to be expected that Bafin will address the largest and most systemically relevant undertakings first. Undertakings should be prepared to provide extensive information at short notice.
Practical note: Undertakings should seek dialogue with Bafin at an early stage and clarify their internal responsibilities for cooperation with both the supervisory and the resolution functions.
Implementation roadmap
The following overview sets out the key action items and respective time horizons. Specific deadlines generally only start to run from a request or determination by Bafin. However, preparation should begin well in advance.
- Immediately / Q4 2026:
- Impact assessment: Assess whether the undertaking falls within the scope of the VSAG and which requirements are likely to apply.
- Governance review: Clarify management board responsibilities for pre-emptive recovery planning.
- Gap analysis: Stocktake of existing contingency plans, stress-testing frameworks and data delivery capabilities.
- 30 January 2027:
- Entry into force of the Solvency II Review amendments and the VSAG (in particular, new requirements for the volatility adjustment); the reorganisation of the insurance guarantee schemes already takes effect on 29 January 2027.
- Preparation and updating of liquidity risk management plans (to be submitted to Bafin annually within the first 16 weeks of the financial year).
- Preparation of sustainability risk plans and climate change scenarios.
- Following a request by Bafin:
- Preparation of the pre-emptive recovery plan (max. six months following the request; extension of up to six months possible upon application).
- Provision of information and analyses for Bafin’s resolution planning.
- If impediments to resolvability are identified: Proposal of remedial actions within four months; if necessary, implementation plan within one month of the regulatory order.
- Ongoing:
- Update of the pre-emptive recovery plan prepared upon request at least every two years and sooner in the event of material changes.
- Review and adjustment of outsourcing arrangements, reinsurance agreements and intra-group service agreements with a view to resolvability.
- Dialogue with Bafin on resolution planning and impediments to resolvability.
Conclusion and outlook
The VSAAG marks a paradigm shift in German insurance supervisory law. For the first time, it establishes a comprehensive recovery and resolution regime for insurance undertakings, giving Bafin far-reaching intervention powers and imposing significant new obligations on the undertakings concerned. With less than four months left until the new rules apply from 30 January 2027, and given the complexity of the requirements, preparations should begin already now.
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