In July 2025, the European Commission (Commission) published a draft delegated regulation to amend the Solvency II Delegated Regulation (the Draft Regulation).
The proposed changes aim to remove barriers that currently hinder (re)insurers from supporting the long-term financing of the EU economy.
The Draft Regulation forms part of the broader initiative to reform the EU Securitisation Framework (as discussed here) and enhance the EU's savings and investments union. It introduces a dedicated treatment for long-term equity investments by insurers, encouraging equity financing of European firms and improving access to stable, long-term capital.
Main Objectives
The proposed changes in the Draft Regulation are designed to tackle several persistent challenges in the current Solvency II framework, including excessive sensitivity to short-term market volatility, disincentives for long-term equity investment, and disproportionate regulatory burdens on smaller insurers. They also seek to improve supervisory consistency across Member States, enhance the treatment of securitisation investments, and introduce tools to manage systemic risks better, ultimately aligning prudential regulation with the EU's broader goals for sustainable and resilient financial markets.
Key Proposed Changes
The Draft Regulation proposes a number of changes potentially relevant to Irish (re)insurers, including:
- Risk Margin Calculation – introduction of an exponential term-dependent factor to boost investment capacity and available capital.
- Volatility Adjustment – revised risk correction mechanism to better reflect expected losses and credit risk as spreads increase.
- Capital Relief Measures – additional reliefs to support long-term investments.
- Securitisation Investments – reduced risk factors to facilitate bank lending and insurer participation in securitisation markets.
- Standard Formula Simplification – carve-outs from mandatory 'look-through' for investment funds and other simplifications.
- Own Funds – new rules for calculating foreseeable dividends using an accrual approach.
- Reinsurance Recognition – inclusion of adverse development covers in the standard formula.
- Counterparty Risk – updated capital requirements for exposures to central clearing counterparties, repos, and securities lending.
- Reporting and Disclosure – a more streamlined SFCR and supervisory reporting, with greater proportionality for smaller insurers.
- Proportionality Measures – defined conditions for supervisory authorities to approve or reject a proportionality request.
Conclusion
The proposed amendments aim to reaffirm the insurance sector's role as a key institutional investor in Europe. By reducing regulatory burdens and enhancing capital flexibility, the changes are expected to unlock insurer investment in the real economy.
Stakeholders are invited to submit feedback on the Draft Regulation by 5 September 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
