Additional Solvency II changes and impact for insurance companies
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Article Type
Insights
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Solutions, Alternative Fixed Income
Published
January 20, 2026
Read time
9 mins
Authors
Daniel Torres
Jelmer Kuiper
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On the 29th of October 2025, the European Commission published the final text to amend the Solvency II Delegated Regulation. Among other implications, insurers are expected to reassess the attractiveness of investment strategies, such as securitizations, long-term equity, and mortgages.  

 

Securitizations become more attractive

Securitizations represent less than 1% of the European insurers’ balance sheets.3 This is significantly lower than in other regions, e.g. the US, where insurers invest up to 20-30% in securitizations, such as asset backed securities (ABS) and collateralized loan obligations (CLOs). The EC aims to revive the securitization market in the EU and facilitate the transfer of risks to the insurance balance sheet.

 

The SCR for simple, transparent and standardized (STS) securitizations, as well as Senior non-STS tranches has been significantly lowered. Senior STS SCRs are now in line with covered bonds. Meanwhile, Senior non-STS are now distinguished from non-senior tranches and benefit from a substantially lower SCR.

 

Table 1 shows the new spread risk SCR per year of duration for securitizations under the standard formula of Solvency II.4    

 

New spread risk SCR for securitisations

      AAA AA A BBB BB B Lower
STS Senior SCR 0.7% 0.9% 1.4% 2.5% 4.5% 7.5% 7.5%
Change -0.3% -0.3% -0.2% -0.3% -1.1% -1.9% -1.9%
Non-senior SCR 2.0% 2.6% 4.0% 7.1% 12.7% 21.3% 21.3%
Change -0.8% -0.8% -0.6% -0.8% -3.1% -5.4% -5.4%
Non-STS Senior SCR 2.7% 3.3% 4.4% 7.5% 14.3% 23.5% 100.0%
Change -9.8% -10.1% -12.2% -12.2% -67.7% -76.5% 0.0%
Non-senior SCR 7.4% 9.0% 12.0% 18.8% 38.9% 63.8% 100.0%
Change -5.1% -4.4% -4.6% -0.9% -43.1% -36.2% 0.0%

Table 1: Spread risk SCR per year of duration (up to 5 years) for securitisations under Solvency II standard formula. Source: European Commission and Aegon AM.

 

Mortgage loans: Minimum SCR is introduced

Mortgage loans are subject to counterparty default risk SCR (Type 2 exposures). The current formula for calculating the SCR is summarized as:

 

SCR = max (0; 15% × LGD)

Where:

Loss, given default (LGD) = max[Loan – (80 % × Mortgage + Guarantee); 0]

 

With the current formula to calculate the SCR, mortgage loans that have a loan-to-value (LTV) ≤ 60% are subject to a counterparty default risk SCR of 0%.6 The EC concluded that the existing treatment understated real risk and produced an uneven playing field with banks, where such exposures are risk weighted. Therefore, a floor to the loss-given default (LGD) on mortgage loans is introduced.7 The new formula is:

 

LGD = max[Loan – (80 % × Mortgage + Guarantee); 5 % × max[0 ; (Loan – Guarantee)]]

 

In practice, the new minimum counterparty default risk SCR for mortgage loans with no guarantee (for LTV ≤ 60%) will be ~0.75% (see Figure 1). This SCR is still very low, especially after accounting for diversification effects between the counterparty default risk and market risk modules.

 

Figure 1: Impact of the loan-to-value on the required capital of a mortgage loan with no guarantee. Source: European Commission and Aegon AM

 

As to the effect guarantees, the minimum SCR of ~0.75% for LTV ≤ 60% is still applicable. After the 60% LTV point, the SCR decreases depending on the coverage of the guarantee. Figure 2 shows the SCR for mortgage loans with a guarantee of 90%.8  

 

Figure 2: Impact of the loan-to-value on the required capital of a mortgage loan with guarantee. Source: European Commission and Aegon AM


Long-term equity investments: Eligible funds and qualifying test

In our previous article,10 we introduced the proposals to improve the applicability of long-term equity investments (LTEI), for which a notably lower and fixed capital charge of 22% applies. The amending Delegated Regulation provides more clarity regarding the eligibility criteria and applicability tests.11

 

Eligible funds include:

·        European Long-Term Investment Funds (ELTIF)

·        Qualifying social entrepreneurship funds

·        Qualifying venture capital funds

·        Unlevered, closed-end alternative investment funds managed by authorized EU AIFMs

 

To apply the LTEI, companies need to run one of the following two tests:

·        Demonstration of ability to avoid forced sales

·        Forced selling test

 

While greater clarity on eligibility has been added, the eligibility tests will make compliance more stringent. At the same time, it is expected to strengthen risk management and ensure the long-term objectives of these investments.

 
 
3Refer to Footnote 2. See explanatory memorandum.
4Further details available in Article 178 (Refer to Footnote 2)
6The LTV of 60% is equivalent to the 80% or the risk adjusted value of the property. Refer to Article 192.4
7Further details in Article 192 (Refer to Footnote 1)
8Assuming that the nominal value of the loan is equal to the market value of the loan

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Authors

Daniel Torres
Senior Investment Solutions Consultant
Daniel Torres is an Senior Investment Solutions Consultant in the Fixed Income, LDI and Investment Solutions team.
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Jelmer Kuiper
Investment Strategist
Jelmer Kuiper joined Aegon Asset Management in 2023. In his role as Investment Strategist, he advises institutional clients on their strategic asset allocation and ALM related topics. 
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