INVESTING FOR TOMORROW

SOLVENCY II REFORM

Solvency II as a catalyst for EU economic investment

One of the central priorities of the new European Commission is to stimulate economic growth, and the recently launched Savings and Investments Union (SIU) represents a strategic initiative aimed at enhancing Europe’s long-term competitiveness. The European insurance sector has welcomed this initiative, while underscoring the pivotal role of regulation in delivering the SIU’s objectives. Releasing excess prudential capital to enable more productive investments – alongside streamlining administrative burdens – is essential to strengthen the global competitiveness of European markets.

Enhancing EU investments: key considerations in the Solvency II review

The revision of the Level 1 Solvency II Directive is a significant step forward in realising the ambitions of the SIU. With the publication of the Directive in January, a significant milestone has already been reached towards unlocking excess prudential capital to support more beneficial investments. It is now essential that the forthcoming Level 2 Delegated Acts are finalised effectively, preserving the advancements made at Level 1 and, where possible, further improving upon them.

There are three pivotal areas where insurers' investments are essential in the years to come, and which should be kept in mind during the finalisation of the Solvency II framework.

1. The role of insurers as institutional investors

As insurers, we have long served as stable, long-term institutional investors, responsibly managing our clients’ savings and retirement funds. A substantial portion of these assets is invested in government and corporate bonds, which offer security and contribute to financing public authorities and private enterprises alike.

A key mechanism within Solvency II that supports this function is the Volatility Adjustment, which mitigates the impact of short-term market fluctuations on balance sheets. The recent revision of the Directive has improved the efficiency of this mechanism. However, the forthcoming Level 2 calibrations, especially those pertaining to the Risk Correction parameter, must be equally robust, particularly under conditions of extreme stress and spread widening. An appropriate calibration, grounded in an empirically driven methodology as proposed by the industry, is essential to ensure that insurers can continue to fulfil their role as key institutional investors in the European economy.

“The ongoing revision of Solvency II constitutes a strategic lever for advancing Europe’s economic and investment agenda.”

2. Key investments in innovation, research, emerging technologies

In a rapidly evolving global market, investing in innovation, emerging technologies, and product development is vital to maintaining Europe’s competitive edge. The revised Solvency II framework, which enables the release of overly conservative capital, marks a positive move towards encouraging such forward-looking investments.

Nonetheless, further enhancements are necessary, such as a more refined reduction of the Risk Margin via precise Level 2 adjustments and a meaningful simplification of the regulatory and reporting framework. Reducing unnecessary complexity would allow both financial and human resources to be reallocated towards growth and innovation.

A concrete example of excessive regulatory burden is the "Solvency and Financial Condition Report" (SFCR). Originally intended to help the public understand an insurer’s financial health, the SFCR has evolved into an excessively complex document, rarely read by its intended audience. Replacing the SFCR with a concise, user-friendly ‘Executive Summary’ would improve clarity for policyholders and clients while preserving access to detailed financial disclosures for those seeking further insights.

3. Investments in alternative assets, infrastructure, sustainable projects

A third strategic pillar where capital released by the Solvency II review should be directed is the expansion into a broader array of financial instruments. For insurers, diversifying portfolios and enhancing return potential is essential to fulfilling obligations to policyholders and stakeholders.

This includes greater engagement in venture capital – which fuels innovation by directly supporting high-potential startups – as well as a wider range of assets such as private equity and long-term infrastructure projects. These strategies not only offer attractive returns but also generate positive externalities by financing projects with high social value: infrastructure development, digital transformation, and sustainability-driven innovation. Such investments contribute meaningfully to the real economy by supporting employment, productivity, and resilient, inclusive growth.