Hanfa gets a new role: It will become the main recovery body for insurers

The Croatian government has designated the Financial Services Supervisory Agency, known as Hanfa, as the primary resolution authority for insurance and reinsurance companies. This designation stems from a new law on the resolution of insurance and reinsurance undertakings, which was forwarded to the parliament during a cabinet meeting held on Wednesday. State Secretary Matej Bule of the Ministry of Finance stated at the session that Croatia previously lacked a legal framework for handling the failure or probable failure of insurers. He noted this gap limited effective action in crisis situations and hindered coordinated efforts with authorities in other member states. Under the proposed legislation, Hanfa will assume specific administrative duties, including determining conditions for initiating resolution proceedings and making final decisions on such measures. Because Hanfa already performs supervisory functions within the same market, the law requires the agency to ensure operational and functional independence between its resolution powers and its supervisory roles. It must establish organizational and staffing mechanisms to prevent conflicts of interest. Additionally, Hanfa is mandated to cooperate with the Ministry of Finance, particularly regarding decisions or actions that could impact public funds or have systemic implications. The bill outlines procedures for appointing a new resolution management team during intervention. Contracts with the previous management would cease, and existing executives would lose their powers and rights to severance pay. A core principle of the resolution process is that no shareholder or creditor should be placed in a worse position than they would face under ordinary liquidation. Specifically, parties must not incur greater losses or suffer more disadvantageous treatment compared to standard insolvency proceedings. Special protections are established for policyholders, beneficiaries, and claimants. These individuals retain the right to compensation if they experience unfavorable treatment relative to the baseline of ordinary liquidation. The legislation also introduces resolution funds, creating pre-established systems for collecting and managing resources from insurance companies, reinsurance firms, and branches of third-country entities. These funds aim to secure financial means necessary for executing resolution procedures. This legislative move transposes European Union Directive 2025/1 into Croatian law. That directive establishes a harmonized European framework for the recovery and resolution of insurance and reinsurance undertakings. By adopting these rules, Croatia aligns its national legal order with broader EU standards designed to manage financial stability risks in the insurance sector. The transition aims to provide clear guidelines for authorities when dealing with distressed institutions, ensuring that interventions are structured and legally sound. The introduction of these mechanisms addresses previous regulatory voids identified by officials. By defining the role of Hanfa clearly, the state seeks to streamline crisis management processes. The separation of supervisory and resolution tasks within the agency is intended to maintain objectivity during critical interventions. Cooperation protocols with the finance ministry further integrate fiscal considerations into the resolution strategy. The establishment of dedicated funds ensures that financial resources are available upfront, reducing reliance on ad hoc funding solutions during emergencies. These changes reflect a broader trend toward robust financial safety nets across Europe. The specific focus on insurance contracts highlights the unique nature of liabilities in this sector, where individual consumers often hold direct claims against the insurer. The legal text emphasizes fairness among different classes of stakeholders while prioritizing the continuity of essential services. As the bill moves through parliamentary procedure, it represents a significant step in modernizing Croatia’s approach to financial supervision and crisis response.