Solvency II 2024 review — what Directive (EU) 2025/2 changes from 30 Jan 2027

Directive (EU) 2025/2 of 27 November 2024 amends the Solvency II Directive 2009/138/EC on several substantive counts ^[1]. The amending directive entered into force on 28 January 2025; Member States must adopt and publish the national transposition measures by 29 January 2027 and apply them from 30 January 2027 ^[1]. An insurer planning in 2026 therefore has a twelve-month window to align internal models, ORSA processes and ICS documentation with the new requirements — before the national supervisor (BaFin, FMA, ACPR, IVASS, CNB, …) reads the first Solvency II report under the new regime.

Not all changes take effect on the same day. Some provisions — notably the amended proportionality threshold and the amended risk-margin formula — apply from 30 Jan 2027 as the national transposition act. Others — such as the EIOPA Implementing Technical Standards on liquidity and macroprudential measures — are detailed downstream via delegated acts and EIOPA guidelines and may only reach full effect in mid-2027 or later ^[2]. For 2026 compliance planning this means: the directive provides the scaffolding; the detail follows.

One of the most practically important changes in Directive (EU) 2025/2 is the introduction of a formalised category of small and non-complex undertakings (SNCU) under the new Art. 29a. An insurer falls into that category if it is cumulatively below the following thresholds: non-life gross written premiums under EUR 100 m, life technical provisions under EUR 1 bn, less than 10 % cross-border business (or under EUR 20 m), plus further quantitative tests on complexity (internal models, long-term-guarantees use, risk concentration) ^[1].

SNCU insurers benefit from a significantly reduced reporting burden: simplified ORSA documentation, more compact Quantitative Reporting Templates (QRTs), a lighter SFCR format, and reduced frequency for some Pillar 3 reports. The administrative burden falls materially, though EIOPA has not published a per-undertaking euro figure ^[2]. Important: classification requires meeting the criteria for two consecutive years; it follows from a notification by the undertaking, which the national supervisor may oppose within a set period — it is not automatic. 2026 is therefore the year in which qualifying insurers should prepare their notification.

Solvency II in its original form was primarily a solvency and not a liquidity framework. After the COVID market dislocations of 2020 and the lapse-risk episodes of 2022/23 that gap has become visible. Directive (EU) 2025/2 therefore adds Art. 144a-c requiring a Liquidity Risk Management Plan (LRMP) — a documented plan for managing liquidity risks under both normal and stress conditions ^[1].

In substance the LRMP covers: identification of liquidity sources and sinks per business segment; stress scenarios (lapse, market sell-off, counterparty default); triggers and escalation paths; links to the existing recovery plan. EIOPA published first drafts of the corresponding Implementing Technical Standards in 2025; the timeline for the final versions is not yet fixed ^[2]. In practice: insurers that today have no dedicated liquidity risk management function must build at least the scaffolding in 2026, so that from 2027 the first LRMP reports can be filed.

The obligation is especially relevant for life insurers. Lapse-risk episodes — disproportionate policy surrenders in a short period — bite directly on liquidity: if 10 % of in-force policyholders surrender their life policies within three months, the corresponding assets must be liquidated, often at stress losses. The LRMP forces the undertaking to walk through this scenario explicitly and predefine answers.

The risk margin is the portion of technical provisions that reflects the take-on cost of a hypothetical reference undertaking — simplified: what a third party would demand to assume the liability portfolio. It is calculated via the cost-of-capital method: expected SCR × cost-of-capital rate × discounting lambda ^[3].

The cost-of-capital rate was fixed at 6 % since Solvency II's entry into force in 2016. Directive (EU) 2025/2 reduces that rate to 4.75 % ^[1]. In addition, a time-dependent lambda (λ = 0.975, with a 50 % floor on the time factor) is introduced that further reduces the risk margin in late cashflow years. In combination this leads to a material reduction in the risk margin — EIOPA’s illustrative example puts the relief at roughly 20 % for a ten-year-duration life portfolio; the actual impact depends heavily on the duration structure ^[2].

On the balance sheet this means: own funds rise because fewer provisions are tied up. A 20 % reduction in the risk margin on a EUR 5 bn life portfolio can free roughly EUR 80-100 m of additional own funds — capacity for growth, dividends or new business lines. But: internal models and standard formula implementations must be re-calibrated for 30 Jan 2027. Most insurers begin re-calibration in Q3 2026, running in parallel against the old formula until Q2 2027.

The Commission positions the Solvency II reform explicitly as a contribution to the Capital Markets Union: insurers should put more equity capital into long-term holdings — particularly in EU companies and infrastructure. To this end the treatment of long-term equity investments is amended: if an insurer holds equity for at least five years and meets specified governance criteria, the capital requirement in the equity risk sub-module drops from 39-49 % to 22 % (for non-strategic holdings) ^[1].

Practically: a life insurer with EUR 2 bn in equities, which today carries an SCR charge of roughly EUR 800 m, can reduce that charge to about EUR 440 m — provided it meets the holding period and governance requirements. That is a EUR 360 m lever on the solvency ratio. The operational conditions — documented investment policy, multi-year investment-horizon evidence, asset-liability matching — are not trivial and must be in place for 2027.

Solvency II was developed in 2009 as a purely microprudential regime — the individual insurer should be solvent; the system was not regulated. Directive (EU) 2025/2 for the first time adds macroprudential tools: national supervisors (NCAs) gain formal powers to impose system-wide measures when risks build up across multiple insurers ^[1]. These include capital surcharges for systemically important institutions, sector-wide liquidity buffers and restrictions on dividend distributions during stress phases.

For the individual insurer this means: even where its own SCR ratio sits comfortably above 100 %, in a crisis the national supervisor can impose additional requirements. EIOPA will coordinate via the ESRB (European Systemic Risk Board), and the proportionality of national measures will be reviewed at Union level ^[2]. Practically: from 2027 the ORSA must explicitly run a systemic-risk scenario — i.e. what happens if the NCA imposes sector-wide measures that additionally burden the firm's own business model.

Sustainability risks had previously been addressed in Solvency II via EIOPA guidelines and soft law; Directive (EU) 2025/2 now lifts them to the directive level. Art. 44 and 45 are amended such that insurers must explicitly identify, assess and steer sustainability risks in the risk-management system and in the ORSA; the new Art. 45a additionally requires the analysis of at least two long-term climate scenarios (e.g. well below 2 °C and significantly above 2 °C) at least every three years ^[1]. These include climate physical risks (natural catastrophes, transition effects), climate transition risks (stranded assets, sectoral revaluations) and non-climate ESG risks (biodiversity, social).

Linkage to CSRD reporting (Directive (EU) 2022/2464 + Directive (EU) 2025/794 (stop-the-clock Omnibus)) is deliberate: the same data points an insurer is already collecting for sustainability reporting must feed into ORSA scenarios and pricing models. Under the new Art. 45a, from 2027 at least two long-term climate scenarios in the ORSA are mandatory where material; tying them to the CSRD data points already being collected reduces the extra effort ^[4].

Several failures and insolvency waves of cross-border insurers in recent years — FWU, Eurovita, Greensill-adjacent insurers — exposed gaps in coordination between national supervisors. Directive (EU) 2025/2 therefore strengthens the role of the group supervisor and introduces explicit information-sharing duties between NCAs ^[1]. Insurers with activity in multiple EU states — via subsidiaries, branches or free-provision-of-services — are monitored more tightly, and host-state national supervisors gain extended rights of inspection.

Practically this affects group structure, group reporting and escalation paths. A group that has not built consolidated compliance governance across its subsidiaries by 2026 must do so before 30 Jan 2027 — otherwise 2027 produces information requirements that have no internal owner yet.

Stage 1 — Q2 2026: gap analysis. Which Directive (EU) 2025/2 requirements does the existing ICS already meet, and where are the gaps? A typical insurer faces 40 to 70 individual requirements — from LRMP documentation, to the ORSA climate stress, to risk-margin re-calibration. The gap analysis prioritises by complexity and lead time.

Stage 2 — Q3-Q4 2026: internal model and standard formula re-calibration. Any insurer running an internal model must implement the amended risk-margin formula + the long-term-equity module and obtain national supervisor sign-off. Standard-formula users wait for the final EIOPA implementing standard but begin parallel calculations.

Stage 3 — Q4 2026 - Q1 2027: ORSA template update. The ORSA 2026, finalised by most insurers in Q4 2026, should already test-drive the new sustainability, liquidity and systemic-risk scenarios. The ORSA 2027 then formally under the new regime; it must be submitted to the national supervisor by Q2 2027.

Stage 4 — Q1-Q2 2027: SFCR + Pillar 3 reporting in the new format. The Solvency and Financial Condition Report for financial year 2026 is still filed in the old format; from financial year 2027 the new format applies. SNCU insurers file the shortened SFCR format for the first time. The final templates and user manual are still pending; EIOPA submitted draft amended reporting standards to the Commission in March 2026 ^[2].

The Solvency II reform runs in parallel to DORA (applied since 17 Jan 2025), the EU AI Act (high-risk application 2 Aug 2026) and CSRD (sectoral ESRS obligation 2025/2026). Each of these regimes has its own risk-management, reporting and ICS requirements, and all four overlap in the ORSA, the internal risk assessment and the governance structure ^[5][6]. An insurer that runs ICS documentation isolated per framework in 2026 drowns in duplicated effort — one that integrates wins speed and consistency.

Concrete example: an AI underwriting-pricing system is simultaneously (a) high-risk under Annex III of the AI Act with deployer obligations under Art. 26, (b) a model under Solvency II Art. 121 with validation and governance requirements, (c) an ICT system with obligations under DORA Art. 5-15, and (d) a component of the sustainability assessment under the ORSA. A consistent documentation that satisfies all four requirements from one data model is the goal — and the ROI of 2026 preparation.