In January 2025, the Solvency II changes were published in the Official Journal, and member states are now required to transpose them into national law within two years. The amendments primarily impact capital management, risk governance, and regulatory reporting requirements in the insurance sector.

 

 

Level 1 changes from Directive (EU) 2025/2 entered into force in January 2025, forming the basis for the revised Solvency II framework. The industry is now awaiting Level 2 updates – amendments to the Delegated Regulation (EU) 2015/35 based on RTS and ITS drafted by EIOPA.

Key Objectives of the Solvency II Revision:

• Encouraging long-term investments
• Enhancing supervision of cross-border (re)insurers
• Simplifying regulations for smaller (re)insurers via proportionality
• Identifying emerging risks (e.g., climate-related financial risks)
• Introducing macroprudential tools to mitigate systemic risks

We previously summarized the most significant changes across the three pillars of Solvency II in another blog post. Here is a concise overview of the main impacts on insurers:

Changes in Pillar 1 (Capital Requirements):

• Reduction of the Risk Margin from 6% to 4,75%:
  Insurers are now required to hold less capital for risk margins, reducing their capital burden.
• Long-Term Guarantee Measures (LTG) to reduce volatility:
  Stabilizing capital requirements for insurers with long-term obligations.
• Long-Term Equity Investments (LTEI):
  Updated eligibility criteria provide insurers with greater investment flexibility and potentially better returns.
• Volatility Adjustment (VA) for application ratio, credit spread sensitivity (CSSR), macro VA for Eurozone:
  Increased flexibility allows insurers to better manage market fluctuations.
• New method for Extrapolation of Risk-Free Interest Rates:
  Adjustments to the valuation of long-term liabilities impact capital requirements based on the liability structure.

Changes in Pillar 2 (Supervisory Rules):

• Macroeconomic Analysis in Own Risk and Solvency Assessment (ORSA):
  Increased macroeconomic assessment requirements enhance strategic planning.
• Governance Enhancements:
  Expanded cybersecurity and climate risk requirements increase regulatory pressure on internal control systems and sustainability strategies.
• Liquidity Risk Management Plans (LRMPs):
  Due to stricter cash flow analysis and stress-testing requirements, insurers must develop strategies to handle liquidity shortfalls.
• Preemptive Recovery Plans:
  Large, systemically relevant insurers must prepare recovery plans under the Insurance Recovery and Resolution Directive (IRRD).

Changes in Pillar 3 (Market Discipline):

• Solvency and Financial Condition Report (SFCR) Split:
  • Simplified, non-technical section for policyholders
  • Detailed, technical section for market professionals
• Extended Reporting Deadlines:
  • Annual QRTs: Extended from 14 to 16 weeks
  • Solo SFCR & RSR: Extended from 14 to 18 weeks
  • Group SFCR: Extended from 20 to 22 weeks
• Reduced Frequency of Regular Supervisory Report (RSR):
  • Every 3 years for most insurers
  • Every 5 years for small and non-complex undertakings (SNCUs)
• RSR Exemptions and Simplifications:
  • More flexibility for small insurers and captives, reducing reporting burdens
  • Supervisory authorities can require more frequent RSRs if necessary
• Audit Requirements:
  Certain SFCR sections now require external audits.

Other Changes:

• Proportionality Measures:
  Governance and risk management requirements are simplified for small insurers, while minimum regulatory standards remain.

Stay ahead of regulatory requirements and updates with our Solvency II & UK Services. Our team provides comprehensive solutions designed specifically for your needs, ensuring you meet all compliance standards efficiently and effectively.

SAVE THE DATE: Solvency II Update Webinar

The adopted Solvency II revisions bring major changes across all three pillars and call for significant adjustments in insurers’ compliance reporting. Being proactive and staying informed is more important than ever.

We’re here to support you – join our free Solvency II Update Webinar in May 2025 about the key changes, their implications for your organization, and how to best prepare. You will receive a personal invitation via our newsletter.