EIOPA Says Index-Tracking ETFs Likely Fail Long-Term Equity Treatment Under Solvency II

Key Takeaways

• EIOPA's final Q&A (ID 3599) confirms that an index-tracking ETF holding EEA listed equities falls outside the Article 171d(2) fund categories and must be assessed on a look-through basis.
• EIOPA expects periodic index rebalancing to adversely affect compliance with the Article 105a(1) long-term equity (LTE) conditions.
• Insurers that planned to use broad-index ETFs for the lower LTE capital charge should reassess their assumptions and potential SCR impact.

Deep Dive

EIOPA's final Q&A (ID 3599) confirms that an index-tracking ETF holding EEA listed equities falls outside the Article 171d(2) fund categories and must be assessed on a look-through basis. EIOPA expects periodic index rebalancing to adversely affect compliance with the Article 105a(1) long-term equity (LTE) conditions. Insurers that planned to use broad-index ETFs for the lower LTE capital charge should reassess their assumptions and potential SCR impact.

The question asked whether an insurer could apply LTE treatment to an index-tracking ETF by looking through to the underlying EEA listed equities. The ETF in the example was physically replicated, tracked a stable broad index, was held in a dedicated portfolio under a long-term investment policy, and was supported by a five-year forced-sale assessment. EIOPA found that the ETF is not among the vehicles listed in Article 171d(2) of Delegated Regulation (EU) 2015/35. Those vehicles are European long-term investment funds, qualifying social entrepreneurship funds, qualifying venture capital funds, and unleveraged closed-ended AIFs managed by authorized EU AIFMs. The ETF therefore falls outside Article 105a(2) of Directive 2009/138/EC, and the fund-level assessment is unavailable.

Look-through is mandatory for the ETF, but EIOPA signals that look-through is unlikely to succeed. When the index provider changes the index composition or stock values move, the ETF manager must trade to keep tracking error low. Those decisions sit outside the undertaking's control. This undermines the premise in Article 105a(1) that the undertaking has discretion to retain, dispose of, or acquire long-term equity investments. EIOPA does not rule out every scenario. However, it states that periodic rebalancing is expected to adversely affect compliance, even where the other conditions (separate identification, long-term policy, diversification, forced-sale resilience) are met. The answer does not set out a pathway to demonstrate compliance.

The question was submitted on June 18, 2026, and the answer is published as final on September 14, 2026. No new deadline is introduced. The answer clarifies the application of the amended framework (Directive (EU) 2025/2 and the amending Delegated Regulation), so it is relevant to current and upcoming SCR calculations and to any pending investment decisions.

Recommended Actions:
- Inventory any equity exposures held through ETFs or similar passive vehicles that are currently treated, or planned to be treated, as LTE.
- Reclassify these exposures under the standard equity risk sub-module unless the vehicle falls within Article 171d(2).
- Quantify the SCR impact, including effects on solvency ratios, capital planning, and ALM or strategic asset allocation.
- Consider alternatives, such as directly held EEA equities that meet Article 105a(1), or eligible fund types.
- Update LTE policies, internal models of eligibility assessment, and documentation. Prepare for supervisory questions on any residual ETF-based LTE claims.

The main risks are an underestimated SCR, capital planning errors, and supervisory challenge if ETF exposures are treated as LTE. Firms that already applied LTE treatment to ETFs may face recalculation, remediation, and disclosure issues. Because EIOPA Q&As are not legally binding but strongly shape supervisory expectations, deviating from this position would require robust, well-documented justification.

Source: European Insurance and Occupational Pensions Authority