EU: Insurance and reinsurance firms – review of technical rules (Solvency II)

 

The EU has published a draft Commission delegated regulation amending Delegated Regulation (EU) 2015/35 as regards technical provisions, long-term guarantee measures, own funds, equity risk, spread risk on securitisation positions, other standard formula capital requirements, reporting and disclosure, proportionality and group solvency.

This Regulation amends Delegated Regulation (EU) 2015/35 to align the prudential rules for insurance undertakings with Directive 2009/138/EC (Solvency II), as recently revised by Directive (EU) 2025/2.

The Solvency II Directive, originally implemented on 1 January 2016 and amended by Directive 2014/51/EU, replaced 14 previous directives (collectively known as “Solvency I”) and established a unified, risk-based regulatory framework for insurance and reinsurance companies across the EU. By introducing harmonised capital requirements linked to actual risks, Solvency II aims to enhance policyholder protection and ensure the stability of the financial system.

Commission Delegated Regulation (EU) 2015/35, which supplements Solvency II, entered into force on 18 January 2015 and operationalises 76 delegated powers granted by the Directive. It lays down technical rules applicable to both individual insurers and insurance groups.

The latest amending Directive (EU) 2025/2 introduces several changes related to proportionality, supervisory quality, reporting obligations, long-term guarantee measures, macro-prudential tools, sustainability risks, and group and cross-border supervision. It also adds and modifies more than a dozen delegated powers, making parts of Delegated Regulation (EU) 2015/35 — such as those concerning extrapolation and long-term equity investments — obsolete once the new Directive applies on 30 January 2027.

This revision is part of the broader Commission Communication on the Savings and Investments Union, issued on 19 March 2025, which seeks to improve how the EU financial system channels savings into productive and sustainable investments. The insurance sector, managing trillions in assets, is a key institutional investor and has the potential to drive long-term capital flows to SMEs, mid-caps, private equity, venture capital, and infrastructure. However, insurance investments in these areas remain limited. Likewise, although insurers can support securitisation by transferring risks from the banking sector, such investments still make up less than 1% of insurance portfolios.

The reform of Solvency II and Delegated Regulation (EU) 2015/35 is expected to free up additional capital beyond minimum solvency requirements. It is essential that this capital is directed towards productive investments in the real economy, including venture capital. Supervisory authorities are encouraged to monitor how insurers use this freed-up capital, including its impact on solvency positions and capital planning. This oversight should also help assess how the revised prudential framework, particularly in securitisation, influences financing for EU companies and the wider economy. This assessment will support the work of the European Supervisory Authorities (ESAs), especially in light of the proposed amendments to the Securitisation Regulation (EU) 2017/2402.

The review draws on two evaluations of the Solvency II framework:

• First, a comprehensive 2021 evaluation of Solvency II concluded that the framework remains generally effective, coherent, and fit for purpose. However, it identified challenges in implementation, including excessive short-term volatility in insurers’ solvency positions and the need for better risk-sensitivity in capital calculations—particularly for long-term investments. It also highlighted overly burdensome reporting and disclosure requirements, and insufficient implementation of proportionality, especially for smaller and captive insurers.
• Second, a 2025 targeted evaluation of the prudential treatment of securitisation within the broader review of the securitisation framework found that while regulatory clarity and standardisation improved, the framework fell short in reducing the stigma around securitisation and lowering prudential barriers for insurance investment in this area. The review concluded that insurers continue to face high regulatory capital charges for securitisation exposures, limiting meaningful growth in investment.