Almost ten years after its entry into force, Solvency II is undergoing a review to ensure that it remains fit for purpose in a changing economic and regulatory landscape. Since 2016, insurers have operated in an environment marked by prolonged low interest rates, increased market volatility, changing risk profiles, and increasing expectations around sustainability and long term investment.

As Petra Hielkema, Chair of EIOPA, noted in a letter dated 29 September 2025 addressed to European Commission:

“Our experience has shown that Solvency II proved itself as a solid foundation, withstanding a number of market turbulences, such as caused by COVID-19, and more recent high inflation.”

Indeed, the Solvency II review is about ensuring that the framework continues to function effectively under today’s conditions. To understand the scope of these changes, it is helpful to look back at the shift from Solvency I to Solvency II.

Solvency I was largely a one-size fits all approach, rules based and focused on relatively simple capital calculations, with limited sensitivity to the actual risk profile of insurers. In contrast, Solvency II introduced a risk based and market consistent framework built on three pillars: quantitative requirements, governance and risk management, and supervisory reporting and disclosure.

The Solvency II review does not represent a structural overhaul of the kind we experienced in 2016. Instead, it is building on the Solvency II foundations, maintaining its core principles while addressing practical challenges identified through nearly a decade of application.

Why Was a Review Needed?

Solvency II was established with the expectation that its provisions would be subject to periodic review. However, several developments made changes more critical.

1. Many years of low interest rates affected long term insurance business and made the risk margin more volatile.
2. Events like the COVID 19 pandemic tested insurers’ ability to manage liquidity and continue operating under stress. While the framework generally held up well, supervisors saw a need for clearer liquidity planning and earlier intervention tools.
3. Cross border supervision became more challenging. Stronger coordination between home and host supervisors was deemed as essential.
4. The level of complexity and compliance burden, especially for smaller insurers, led to calls for a clearer and more predictable approach to proportionality.

What are the key areas of change?

The Solvency II review cuts across all three pillars of the regime:

1. Pillar I – The changes mainly focus on capital requirements and valuation. The most important change is to the risk margin, which is being recalculated to reduce its sensitivity to interest rate movements.

The revisions also seek to encourage long‑term investment, particularly in equities, by relaxing the criteria for long‑term equity investments and applying lower capital charges to them.

2. Pillar II – Insurers are required to integrate sustainability and climate related risks more explicitly into their risk management framework and ORSA, including climate change scenario analysis where exposures are material. The ORSA is expanded to include macroeconomic and financial market considerations, reflecting a stronger macroprudential focus.

The review also enhances supervision of cross‑border activities by reinforcing cooperation between home and host supervisors. At the same time, proportionality is increased, with lighter governance and ORSA requirements for small and non‑complex undertakings and captives.

3. Pillar III – The review updates reporting and disclosure requirements to improve transparency while reducing unnecessary burden. The structure and content of the SFCR and RSR are revised, including a clearer separation between information aimed at policyholders and information aimed at market professionals. Parts of the SFCR, in particular the balance sheet, become subject to audit, although exemptions apply for small and non‑complex undertakings and captives. Reporting deadlines for annual submissions are extended to reflect these new requirements, and reporting frequency and content are reduced for smaller firms where appropriate.

4. Proportionality and Small and Non Complex Undertakings – For the first time, the Directive formally recognises Small and Non Complex Undertakings (SNCUs). This creates a clearer legal basis for proportionality. Eligible insurers may benefit from simpler governance and reporting requirements, provided they meet specific criteria and remain subject to supervisory oversight.

What’s Next?

The Solvency II review is exactly what the name implies: a review, not a departure from Solvency II’s underlying framework. It does not alter the three‑pillar structure that has underpinned the framework since its introduction. Rather, it represents a gradual evolution, building on a regime that has proven effective. The review seeks to refine and recalibrate specific elements to ensure the framework remains risk‑sensitive, proportionate, and capable of supporting insurers in meeting long‑term commitments.

At the same time, the updates are substantial enough that insurers will need to reassess key areas of their operations, including governance frameworks, liquidity planning, and reporting processes.

Insurers should take a proactive approach, reviewing and updating their frameworks now to ensure compliance when the revised framework comes into force in January 2027. Success of the revised regime will depend on how prepared insurers are to adapt.