Insurance & Actuarial8 min read

Solvency II 2025 Review: What Changes for Insurers

By Jonas Adam Mohamed Osman, known as Yonas Osman

CEO of Quantica Risk

60 Rue François Ier, 75008 Paris, France

Published 15 October 2026

A practitioner guide to the Solvency II 2025 review: volatility adjustment, risk margin, proportionality and reporting changes insurers must plan for.

Executive answer

The Solvency II 2025 review package, transposing the 2021 EIOPA advice and subsequent trilogue agreement, recalibrates the risk margin cost-of-capital rate, widens the volatility adjustment, and introduces a proportionality regime for low-risk undertakings. Insurers should treat this as a multi-year programme rather than a reporting update, because capital models, ORSA narratives and strategic asset allocation all shift in response to the new balance sheet mechanics.

For most life insurers, the lower risk margin cost-of-capital rate releases capital, while extrapolation changes to the risk-free curve alter technical provisions for long-dated liabilities. Boards need a clear view of the net impact before committing to dividend or growth plans, since transitional measures soften but do not eliminate the shift, and supervisors expect firms to demonstrate they understand both the mechanical and behavioural consequences of the recalibration.

Risk margin and volatility adjustment mechanics

The reduced cost-of-capital rate for the risk margin, moving toward a lower single figure with a tapering factor for longer durations, materially reduces the risk margin for long-tail life and annuity business. This was a long-standing industry concern because the prior calibration was seen as overstating the cost of transferring liabilities, especially for guaranteed products where market-consistent valuation already captures much of the option risk through stochastic modelling.

The revised volatility adjustment introduces a permanent country-specific component and a macro adjustment usable in stressed markets, intended to reduce artificial balance-sheet volatility that does not reflect actual asset-liability risk. Firms relying heavily on the volatility adjustment to manage Solvency Capital Requirement coverage should stress-test the new formula against historical spread episodes, since the macro component activation criteria are narrower than many expected during the original consultation.

Proportionality, reporting and supervisory expectations

A new proportionality framework exempts small and non-complex undertakings from some quantitative reporting and governance requirements, while giving supervisors discretion to apply simplified measures more broadly. EIOPA has signalled it expects national supervisors to apply the criteria consistently, but early guidance suggests meaningful variation across member states, so groups operating in several jurisdictions should not assume uniform relief.

Reporting templates (QRT) and the Solvency and Financial Condition Report are being streamlined to cut duplication, but new disclosure obligations on sustainability risk and macroprudential indicators, including liquidity risk, partly offset the simplification. Actuarial and finance teams should map which templates are retired, which are new, and where ORSA narrative content must now explicitly address macroprudential and recovery planning expectations introduced alongside the recovery and resolution directive.

Implementation priorities for 2025-2027

Firms should run parallel calculations under current and revised rules at least two reporting cycles before go-live, because capital release under the new risk margin can tempt premature capital actions before transitional arrangements and national transposition details are finalised. Model governance teams should document assumption changes clearly, since internal model firms must justify why their own risk margin or volatility adjustment proxies remain appropriate under the new standard formula benchmark.

Strategic asset allocation committees should reassess duration matching and liquidity buffers in light of the revised extrapolation and volatility adjustment mechanics, which change the sensitivity of own funds to interest rate and spread movements. Group-level entities should also prepare for the new macroprudential tools, including potential liquidity risk management plans, which some national supervisors are expected to request ahead of the formal 2026-2027 implementation deadlines.

Conclusion

The 2025 review is less about new capital formulas and more about recalibrating existing mechanics to behave more sensibly across market cycles, while adding macroprudential guardrails the original 2009 directive lacked. Insurers that treat the transition purely as a compliance exercise risk missing genuine opportunities to rebalance capital and asset strategy as the rules bed in over the coming reporting cycles.

Boards should expect supervisors to ask pointed questions about how firms used any capital released by the risk margin recalibration, particularly where it coincides with dividend decisions. Jonas Adam Mohamed Osman, CEO of Quantica Risk, approaches this transition by stress-testing own-funds sensitivity under both old and new calibrations before any capital action is taken, so clients enter the new regime with evidence rather than assumption.

Primary sources

Solvency IIEIOPAcapital requirementsinsurance regulation