2. Where a resolution authority decides to apply a resolution tool to an entity referred to in Article 1(1), points (a) to (e), and that resolution action would result in losses being borne by creditors, in particular policy holders, or would result in their claims being restructured or converted, the resolution authority shall exercise the power to write down or convert capital instruments and eligible liabilities in accordance with Article 35 immediately before or together with the application of the resolution tool.
Any proceeds, generated after recovery of any reasonable expenses properly incurred in connection with the use of the resolution tools or the exercising of resolution powers as a result of the application of any resolution tool in accordance with paragraph 5, shall first compensate the entity’s policy holders and other creditors to the extent that their claims have been written down without being fully compensated.
The conversion of eligible liabilities into capital instruments may be applied to insurance claims only in cases where the resolution authority justifies that the resolution objectives cannot be achieved through other resolution tools, or that the conversion of insurance claims would lead to better protection for policy holders compared to the use of any other resolution tool and the write-down of their claims.