EIOPA Outlines Solvency II Capital Relief Expectations and Long-Term Investment Changes for Insurers

Key Takeaways

• EIOPA's Eurofi article explains that the revised Solvency II framework, applicable from January 30, 2027, is expected to release significant capital through a revised risk margin calculation.
• That release comes with an explicit political expectation that the capital will support productive European investment.
• Compliance teams should prepare for new capital treatments, closer supervisory monitoring of capital use, and EIOPA's first report by the end of 2028.

Deep Dive

EIOPA's Eurofi article explains that the revised Solvency II framework, applicable from January 30, 2027, is expected to release significant capital through a revised risk margin calculation. That release comes with an explicit political expectation that the capital will support productive European investment. Compliance teams should prepare for new capital treatments, closer supervisory monitoring of capital use, and EIOPA's first report by the end of 2028.

It highlights three prudential changes that affect investment activity. First, the conditions for long-term equity investments are clarified and, in some respects, eased, so more holdings may qualify for lower capital charges. Second, a specific treatment applies to equity investments made under legislative programs, meaning schemes that combine public support with private financing in sectors such as clean technology, biotech, security, and defense. Insurers using the standard formula may apply a reduced equity capital charge, subject to supervisory approval, and the European Commission maintains a public register of eligible programs. Third, standard formula capital charges for securitizations are significantly reduced. Securitizations fully guaranteed by the European Investment Bank or the European Investment Fund require no capital, and the simplest and most transparent securitizations need only one credit rating instead of two.

The key date is January 30, 2027, when the revised framework applies. The first EIOPA report on the use of released capital is due by the end of 2028. The article does not set other deadlines, but the lead time before application is short for model changes, approvals, and governance updates. Notably, the reduced charges for legislative program investments require supervisory approval, so insurers should plan for early engagement with their national supervisors.

The article also points to broader themes with conduct and resilience implications. Under the Savings and Investments Union, households are encouraged to move savings toward investment-based products, including insurance, which raises the importance of value for money, product governance, and fair pricing. EIOPA continues to advocate a harmonized European framework for insurance guarantee schemes, based on national schemes with common minimum standards. This is not yet a legal requirement, but it indicates future policy direction. EIOPA also cautions that simplification must not weaken consumer protection, financial stability, or the level playing field.

Recommended actions:
- Quantify the expected impact of the risk margin change on capital and solvency positions.
- Develop a documented, board-approved capital deployment and distribution rationale that can withstand supervisory review.
- Assess the portfolio for eligibility under the long-term equity, legislative program, and securitization treatments, and check eligible programs against the Commission's register.
- Update investment policies, risk appetite statements, and standard formula calculations, and identify where supervisory approval is needed.
- Review product governance and value-for-money frameworks.
- Monitor developments on guarantee schemes.

Risk implications: The main risks are supervisory and reputational if released capital is perceived to go mainly to shareholders. There are also implementation risks from new calculations, approvals, and data requirements, as well as investment concentration and credit risk if lower capital charges encourage greater exposure to equities and securitizations. Lower charges should not replace sound internal risk assessment under the Own Risk and Solvency Assessment.

Source: European Insurance and Occupational Pensions Authority