The Solvency II Directive 2009/138/EC (Solvency II) established a harmonised risk-based prudential framework for (re)insurers in the European Union.

More than a decade after its implementation, this framework has been subject to a comprehensive review by the European Parliament and Council, culminating in Directive EU 2025/2 (Amending Directive).

The reforms represent an important evolution of the Solvency II framework. While preserving policyholder protection and financial stability as core objectives, the changes in the Amending Directive move the regime away from a broadly uniform, capital-centric approach towards a more proportionate and risk-sensitive framework. In particular, the changes seek to better reflect the differing nature, scale and complexity of insurers’ business models and reduce any unnecessary regulatory burden for smaller and less complex undertakings. They also better recognise the long-term nature of many insurance liabilities and investment strategies.

The Amending Directive introduces significant changes across all three pillars of Solvency II, including new rules on proportionality, reporting and disclosure reforms, enhanced supervisory powers and changes intended to support long-term investment.

While the Amending Directive took effect on 28 January 2025, Member States must transpose the changes into national law by 29 January 2027. Transposing measures will then apply from 30 January 2027. With this date fast approaching, we highlight some of the key changes introduced by the Amending Directive.

Capital and Supervisory Reforms

Risk Margin

One of the most significant quantitative changes is the reduction in the cost-of-capital rate used in the calculation of the risk margin from 6% to 4.75%. For many firms, this is expected to reduce technical provisions and release capital, although the impact will vary depending on the nature of the business and liability profile.

Long-Term Equity Investments

The reforms also broaden the ability of (re)insurers to benefit from preferential capital treatment for qualifying long-term equity investments. Where specified conditions are met (including clear asset identification, separate management arrangements and a board-approved long-term investment strategy) firms may apply a reduced capital charge to these investments. The changes aim to encourage long-term investment and support (re)insurers’ role as institutional investors.

Standard Formula and Interest Rate Changes

Several technical amendments are also being introduced to the standard formula and the extrapolation of the risk-free interest rate term structure. These changes are intended to ensure that the Solvency II framework remains risk-sensitive and reflects developments in financial markets.

Enhanced Supervisory Focus on Liquidity and Cross-Border Activity

The reforms introduce a greater macro-prudential dimension to Solvency II, including a new requirement for most undertakings to maintain a liquidity risk management plan. Additional measures relating to significant cross-border activities also aim to strengthen supervisory coordination and policyholder protection across the EU.

Reporting, Disclosure and Governance

The Amending Directive introduces several measures aimed at making Solvency II reporting and governance requirements more proportionate, while maintaining effective supervisory oversight.

Reporting Requirements

While quarterly reporting timelines remain unchanged, most annual reporting deadlines will be extended from January 2027 under the Amending Directive, giving firms additional time to prepare regulatory submissions.  By way of example:

• Solo annual Quantitative Reporting Templates (QRTs) – must be filed within 16 weeks of the firm’s financial year-end (up from 14 weeks);
• Solo Solvency and Financial Condition Report (SFCR) / Regular supervisory report (RSR) – must be filed within 18 weeks of the firm’s financial year-end (up from 14 weeks)
• Group annual QRTs – must be filed within 22 weeks of the group’s financial year-end (up from 20 weeks)
• Group SFCR / RSR – must be filed within 24 weeks of the group’s financial year-end (up from 20 weeks)

The Amending Directive also gives supervisory authorities greater discretion to limit certain reporting obligations. This discretion applies where the information would be disproportionately burdensome having regard to the nature, scale and complexity of the undertaking’s risks and is otherwise available through annual reporting. Similar powers are introduced in respect of RSRs, allowing certain undertakings to benefit from reporting exemptions where specified conditions are met. Priority for such relief measures must generally be given to small and non-complex undertakings.

The availability of these relief measures will, however, be subject to safeguards. In particular, undertakings benefiting from reporting exemptions or limitations cannot collectively represent more than 20% of the relevant life, non-life or reinsurance market, with priority generally being afforded to small and non-complex undertakings.

In parallel, the European Insurance and Occupational Pensions Authority’s (EIOPA‘s) proposed revisions to the reporting framework are expected to significantly reduce and simplify QRT reporting through the removal of several templates and data points.

ORSA and Climate Reforms

The own risk and solvency assessment (ORSA) remains a central component of the Solvency II framework. (Re)insurers will generally continue to be required to perform an ORSA annually and following any significant change in their risk profile. However, “small and non-complex undertakings” (SNCUs) and certain captive (re)insurers may perform their ORSA every two years rather than annually. Despite this exemption, firms must continue to identify, measure, manage, monitor and report on risks on an ongoing basis.

The reforms also strengthen the integration of climate-related risks within (re)insurers’ risk management frameworks. Firms with material exposure to climate change risk will be required to assess the long-term impact of climate change through at least two prescribed climate scenarios, which must be reviewed at least every three years.

RSR and SFCR Changes

The Amending Directive introduces significant changes to public disclosures.

Most notably, the SFCR will be divided into two distinct sections: one aimed at policyholders and beneficiaries, and another intended for market professionals. This reflects a broader objective of improving the accessibility and usefulness of Solvency II disclosures for different stakeholder groups.

SNCUs will benefit from simplified disclosure obligations and may elect to disclose only quantitative regulatory reporting information within the market-professional section of the SFCR, subject to periodic full reporting requirements. Captive (re)insurers will not have to include a dedicated section to policyholders in their SFCRs while reinsurers have discretion whether to include this section.

The RSR will continue to be submitted at least every three years, consistent with the existing framework, with SNCUs benefiting from a reduced reporting frequency under the proportionality measures.

In addition, Member States will be required to introduce an audit requirement for the Solvency II balance sheet disclosed within the SFCR, subject to certain exemptions for SNCUs and captives. Firms must also submit an accompanying auditor’s report to their supervisory authority.

Proportionality

From 30 January 2027, Member States must ensure that (re)insurers meeting certain requirements are classified as SNCUs. (Re)insurers classified as SNCUs will automatically benefit from several proportionality measures intended to reduce the regulatory burden while maintaining appropriate oversight.

These measures include:

• preparation of the regular supervisory report (RSR) every 3 years (or up to every 5 years where permitted by the supervisory authority);
• greater flexibility in the combination of certain key function holders subject to appropriate management of conflicts of interest and not compromising the individual’s ability to perform their responsibilities;
• review of key written policies at least every 5 years (instead of annually);
• the ability to conduct the ORSA at least every 2 years (instead of annually) and an exemption from climate change assessment requirements;
• exemption from the requirement to audit the Solvency II balance sheet disclosed in the SFCR;
• permitted use of a simplified calculation for certain risk modules or risk sub-
• module subject to satisfying certain conditions; and
• exemption from the new requirement to prepare a liquidity risk management plan.

The criteria for SNCU classification vary depending on the nature of the undertaking’s business and include specific provisions for captive (re)insurers and, in certain circumstances, groups.

A (re)insurer seeking SNCU status must notify its supervisory authority of its compliance with the relevant criteria. The notification must confirm that no strategic changes are planned over the following three years that would result in non-compliance and identify the proportionality measures the (re)insurer intends to apply. Unless an objection is raised within the applicable assessment period, SNCU status will take effect automatically.

Undertakings that do not qualify as SNCUs may nonetheless apply to their supervisory authority for specific proportionality measures where justified by the nature, scale and complexity of their business. Unlike the SNCU notification process, these measures require prior supervisory approval.

The Central Bank of Ireland (Central Bank) established a pre-application assessment process (which opened on 1 September 2026) for firms considering applications for non-SNCU proportionality measures. Firms intending to avail of these measures should ensure that any engagement with the Central Bank forms part of their broader implementation programme.

Conclusion

The Solvency II reforms represent the most significant evolution of the regime since its introduction. Taken together, the amendments are intended to create a more proportionate, risk-sensitive and forward-looking prudential framework, while maintaining high standards of policyholder protection and financial stability.

While certain supporting technical standards remain subject to finalisation, (re)insurers are now largely focused on executing their programmes for compliance with the amended Solvency II framework. As the 30 January 2027 application date approaches, firms should ensure that implementation workstreams remain on track, new governance and reporting requirements are fully embedded, and any applications for proportionality measures are advanced within the relevant regulatory timelines.

If you wish to discuss this topic further, please contact a member of the Insurance Department.