Solvency II Delegated Regulation

Introduction

On 29 October 2025, the European Commission adopted Commission Delegated Regulation C(2025) 7206, amending Delegated Regulation (EU) 2015/35 (the "Solvency II Delegated Regulation"). This amending regulation, subsequently published as Commission Delegated Regulation (EU) 2026/269, aligns the Solvency II prudential framework with the changes introduced by Directive (EU) 2025/2 (the "Solvency II Review Directive"), and is expected to apply from 30 January 2027. The amendments are wide-ranging, but this briefing focuses on areas of particular interest to insurers' investment portfolios:

• market risk module: revised correlation parameters,
• look-through approach,
• long-term equity investments,
• equity risk stressing, and
• substantial changes in the treatment of securitisations.

In each case, we highlight the relevant article references and identify where the amendments will deliver a material easing of stress factors and capital requirements.

Market Risk Module: Revised Correlation Parameters

A significant and often overlooked change concerns the correlation matrix within the market risk module. Article 164(3) of the Solvency II Delegated Regulation sets out the correlation parameters used to aggregate the sub-modules of market risk (interest rate, equity, property, spread, concentration and currency). The existing framework applied a correlation of 50% between spread risk and interest rate risk in the interest rate downward scenario. Empirical analysis conducted by EIOPA demonstrated that this calibration was overly conservative, finding that the largest interest rate decreases did not coincide with the largest spread widening in bond markets. The amended Article 164(3) (introduced by paragraph (41) of Article 1 of the amending regulation) reduces this correlation from 50% to 25% in the interest rate downward scenario (and to zero in certain cases).

In more detail:

The parameter B shall be equal to 0 where the capital requirement for interest rate risk set out in Article 165 is the capital requirement referred to in point (a) of that Article. In all other cases, the parameter B shall be equal to 0,25.

Material easing: This reduction in the spread/interest-rate-down correlation factor represents a meaningful decrease in the aggregated market risk capital charge for undertakings with significant fixed-income portfolios. Where an insurer holds substantial bond and loan assets alongside long-duration liabilities, the diversification benefit within the market risk module will increase, resulting in a lower overall standard formula Solvency Capital Requirement.

Look-Through Approach

The look-through approach, which requires insurers to assess capital requirements by reference to the underlying assets of collective investment undertakings (CIUs) rather than the fund units themselves, has been amended in two respects.

First, Article 84(4) of the Solvency II Delegated Regulation (amended by paragraph (25) of Article 1) is broadened so that the look-through now also applies to those undertakings that manage assets on behalf of "any other undertaking of the group to which the participating undertaking belongs". This closes a regulatory gap identified in Recital (17), where related undertakings managing assets for multiple entities within the same group were unduly excluded from the look-through principle.

Second, and more significantly from a proportionality standpoint, the regulation introduces a carve-out from the mandatory application of look-through for certain investment funds. This carve-out applies where the calculation of individual capital requirements on a look-through basis would be unjustifiably burdensome or costly, but excludes the market risk module or any sub-module within it from the simplified calculation. Specifically, the new Article 89a (inserted by paragraph (26) of Article 1) permits simplified calculations for immaterial risk modules or sub-modules, but expressly excludes these from being applied to the market risk module or any risk sub-module within market risk.

Practical impact: The broadening of Article 84(4) is a corrective measure ensuring consistent application of look-through across groups. The carve-out from mandatory look-through for immaterial non-market-risk sub-modules represents a proportionality gain for smaller or less complex undertakings but does not ease requirements for market risk itself. The possibility of not applying look-through in "burdensome situations" should have limited practical impact, as investors are required to assess the risks of underlying assets in any event, and in practice, information on underlying assets is readily available and accessible.

Long-Term Equity Investments

The treatment of long-term equity investments has been substantially reworked through a revised Article 171a and new Articles 171b, 171c and 171d (paragraphs (49) and (50) of Article 1 of the amending regulation). These provisions implement Article 105a of Directive 2009/138/EC as amended by the Review Directive.

Under the revised framework, long-term equity investments benefit from a preferential risk factor of 22% (as set out in Article 105a(4) of the amended Directive). This compares with the standard Type 1 equity stress of 39% (plus/minus symmetric adjustment) and the Type 2 equity stress of 49% (plus/minus symmetric adjustment). The 22% factor therefore represents a material easing of approximately 17 percentage points for Type 1 equities and 27 percentage points for Type 2 equities that can qualify as long-term.

To qualify for the preferential treatment, insurers must demonstrate the ability to hold these equity investments for at least five years without being forced to liquidate, even under stressed conditions. The new Article 171b specifies the methodologies for demonstrating the "no forced sale" condition. An insurer must satisfy one of two conditions:

• either that a sufficient amount of particular homogeneous risk groups of life insurance and reinsurance liabilities, whose Macaulay duration exceeds 9.5 years, are illiquid; or
• that a sufficient liquidity buffer is in place for non-life business.

The detailed stress test requires the undertaking to project cash flows over a five-year horizon, assuming SCR-level stresses in the first year and reduced stresses in subsequent years.

Articles 171c and 171d address the application of the long-term equity treatment through collective investment undertakings. For certain "lower risk profile" CIUs, including European Long-Term Investment Funds (ELTIFs), qualifying social entrepreneurship funds, qualifying venture capital funds, and closed-ended alternative investment funds with no leverage, the "no forced sale" conditions may be assessed at fund level rather than at the level of each underlying asset. Where the conditions are met at fund level and look-through can be applied, the 22% factor applies to the equity exposures within the fund; where look-through cannot be applied, it applies to the units or shares of the CIU. Structuring out of look-through may be advantageous where not all underlying assets of the fund would otherwise qualify for the 22% stress factor.

Material easing: The 22% long-term equity risk factor represents the single largest potential reduction in equity capital charges available under the revised framework. In addition, the option of whether or not to apply look-through opens room for some structuring flexibility.

Equity Risk Stressing and the Symmetric Adjustment

The symmetric adjustment mechanism, which dampens pro-cyclicality in the equity risk sub-module, is amended by paragraph (51) of Article 1, which replaces Article 172(4). The limits on the symmetric adjustment are widened from ±10% to ±13%. This means the effective equity stress factor for Type 1 equities can now range from approximately 26% (39% − 13%) to 52% (39% + 13%) rather than the previous 29% to 49%.

Material easing: In a market downturn, where equity prices have fallen significantly over the prior 36-month rolling window, the wider symmetric adjustment band means the equity stress factor can be reduced by up to 13 percentage points (rather than 10), providing additional capital relief precisely when it is most needed. This better mitigates pro-cyclical effects in stressed market conditions.

The new Article 173 (paragraph (52) of Article 1) introduces a dedicated prudential treatment for equity investments under qualifying legislative programmes that fulfil the conditions of Article 133(5) of the Capital Requirements Regulation. The risk factor applicable to such investments is reduced in proportion to the quantified reduction in credit risk achieved by the programme. For instance, if the programme reduces credit risk by 20%, the long-term equity risk factor of 22% is reduced by 4.4 percentage points to 17.6%. For legislative programmes included in the Commission's public register, the credit risk reduction is deemed to be at least 5%, capping the risk factor at 20.8%. The treatment is subject to prior supervisory approval and is capped at 10% of the undertaking's eligible own funds.

Spread Risk on Securitisation Positions

The amendments to the spread risk treatment of securitisations are among the most impactful changes for insurers' investment portfolios. The key changes are effected through amendments to Article 178 of the Solvency II Delegated Regulation (paragraph (56) of Article 1).

Historically, the Solvency II framework imposed highly punitive capital charges on securitisation positions, effectively driving European insurers out of this asset class. As a result, securitisations currently constitute less than 1% of European insurers' total invested assets. In stark contrast, US life insurers, operating under the more risk-sensitive capital regime of the National Association of Insurance Commissioners, continue to invest heavily in the sector, allocating approximately 15% of their total assets to securitised credit. The amended Solvency II framework aims to address this significant regulatory disparity, removing the historical barriers that have constrained European insurers and facilitating their renewed participation in the securitisation market.

STS securitisations (senior tranches): Risk factors for senior tranches of STS securitisations (simple, transparent and standardised, STS) are aligned with those applicable to corporate bonds or covered bonds with comparable credit quality steps, addressing the prior inconsistency where STS securitisations attracted higher capital charges than equivalently rated bonds. This delivers a significant reduction in spread risk capital charges for these positions.

Non-STS securitisations (new distinction between senior and non-senior tranches): The existing framework did not distinguish between senior and non-senior tranches of non-STS securitisations, resulting in an overestimation of spread risk for high-quality senior tranches.

The amended framework introduces a new paragraph 8 to Article 178, establishing specific risk factors for senior tranches of non-STS securitisations for which a credit assessment by a nominated External Credit Assessment Institution (ECAI) is available. The bi factors for senior non-STS tranches are as follows:

A separate paragraph 8a provides bi factors for non-senior tranches of non-STS securitisations for which a credit assessment by a nominated ECAI is available:

Securitisation positions not covered by paragraphs 3 to 8a of that Article shall be assigned a risk factor stressing of 100%.

Material easing: The introduction of differentiated risk factors for senior non-STS tranches represents a very substantial reduction from the previous undifferentiated bi factors that applied to all non-STS tranches regardless of seniority. By way of example, a AAA-rated (credit quality step 0) senior non-STS securitisation position with a modified duration of 4 years would now attract a spread risk stress of approximately 10.8% (2.7% × 4), compared with significantly higher charges under the previous regime where the same undifferentiated factor for non-STS type 2 securitisations was 12.5%. This also reduces the gap between STS and non-STS capital charges, which was previously far more pronounced for insurers than for credit institutions.

Additionally, the requirement to obtain a double credit rating for STS securitisation positions is deleted, while the requirement is maintained for other securitisations. This removes an operational barrier that had deterred some insurers from investing in STS securitisations.

Summary of Material Easings

The table below summarises the key areas where the Delegated Regulation delivers a material easing of stress factors and capital charges:

What does this mean for products offered to insurance companies and their managers?

The cumulative effect of these amendments is to reshape the landscape for asset managers, fund sponsors and structured product arrangers whose client base includes European insurers.

In fixed income and credit, the halving of the spread/interest-rate-down correlation (Article 164(3)) means that insurers can hold larger credit portfolios without a proportionate increase in aggregated market risk capital. Asset managers offering investment-grade and crossover credit strategies, particularly those structured as segregated mandates or dedicated CIUs with full look-through transparency, become more attractive to insurance allocators who can now capture spread without the previous diversification penalty. Managers should expect increased demand for bespoke mandates that facilitate granular reporting under the revised look-through requirements of Article 84(4).

Finally, the wider symmetric adjustment corridor (±13% under Article 172(4)) reduces the pro-cyclical pressure on insurers to liquidate equity positions in market downturns. This should translate into more stable allocations to equity-oriented mandates and less forced selling during stress events, representing a meaningful improvement in the quality of the insurance investor base from an asset manager's perspective.

In equities and private markets, the 22% long-term equity factor (Articles 171a–171d) and the fund-level assessment for qualifying CIUs create a powerful incentive for managers to structure products that meet the "no forced sale" criteria. ELTIFs, closed-ended private equity and infrastructure funds, and qualifying venture capital vehicles become substantially more attractive to insurers from a capital perspective. Fund managers should consider whether their existing fund structures satisfy the conditions of Article 171c (lower risk profile CIUs) and, if not, whether restructuring, such as eliminating leverage or adopting closed-ended structures, would unlock the preferential treatment for their insurance investors. The legislative programme equity treatment (Article 173) also creates a niche opportunity for managers offering strategies aligned with government-backed investment schemes: products investing in qualifying programmes can offer insurers risk factors as low as 17.6%, representing an exceptionally capital-efficient route into policy-driven asset classes such as social housing, renewable energy and SME finance.

For securitisation products, the recalibration is transformative. Senior STS tranches now carry capital charges aligned with covered bonds (Article 178), making them directly competitive with traditional fixed-income assets in matching adjustment portfolios and annuity backing strategies. Arrangers and originators of STS-compliant securitisations should see materially increased insurance demand, particularly given the removal of the double-rating requirement. Equally, the new differentiated treatment of senior non-STS tranches (Article 178(8)) means that bespoke or private securitisations, including CLOs, whole-business securitisations, and infrastructure debt ABS that do not meet STS criteria, are now significantly more capital-efficient for insurers provided the tranche is senior and investment-grade. This widens the addressable market for arrangers of non-standard structured credit.

Outlook

Absent a potential objection by the European Parliament and Council, the Delegated Regulation will be published in the Official Journal and will apply from 30 January 2027. The Commission has stated clearly that it expects the capital freed up by these reforms to be channelled towards productive investments in the EU real economy, including securitisations, venture capital and infrastructure. EIOPA has been tasked with monitoring how freed-up capital is deployed, with a first report due by 31 December 2028.

Insurers should begin preparing now for the implementation of these changes, including reassessing their investment strategies and internal models in light of the revised standard formula calibrations.