The Solvency II Review introduces significant changes for insurance undertakings and insurance groups from 30 January 2027. The focus is on new proportionality rules, a more advanced risk-based approach, and adjustments to capital requirements and reporting obligations. According to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin, German Federal Financial Supervisory Authority), Solvency II has generally proven effective as a supervisory framework, meaning that targeted adjustments rather than a fundamental overhaul were required.
Implementation of the Solvency II Review
The amending directive for the Solvency II Review was published in the Official Journal of the European Union on 8 January 2025. The associated Level 2 rules are contained in Delegierte Verordnung (EU) 2026/269 (Delegated Regulation (EU) 2026/269), which was published in the Official Journal of the European Union on 18 February 2026. It entered into force 20 days after its publication but will not apply until 30 January 2027.
VSAAG Transposes the Amendments into German Law
On 10 February 2026, the Bundesministerium der Finanzen (German Federal Ministry of Finance) published the ministerial draft of the Versicherungs-Sanierungs-Abwicklungs-und-Aufsichtsänderungs-Gesetz (VSAAG, German Insurance Recovery, Resolution and Supervision Amendment Act). The Bundestag (German Federal Parliament) and Bundesrat (Federal Council) adopted the Act on 25 September 2026. It was promulgated in Bundesgesetzblatt Teil I 2026 Nr. 275 (Federal Law Gazette Part I 2026 No. 275) of 30 September 2026.
The new rules for insurers will apply from 30 January 2027. According to the Gesamtverband der Deutschen Versicherungswirtschaft (German Insurance Association), the association advocated during the legislative process for one-to-one implementation of the European rules and for relief for smaller undertakings.
The VSAAG also expands the supervisory authorities’ powers of intervention. In future, BaFin may take action even before the Solvency Capital Requirement is breached if a deterioration in solvency is foreseeable.
Proportionality as a Key Focus of the Reform
A central element of the Review concerns the calibration of supervisory requirements according to an insurer’s size, complexity and risk profile. The thresholds governing the scope of Solvency II have been raised. From January 2027, insurers that fall below the new thresholds will be subject to the less extensive Solvency I rules.
Relief is also envisaged for undertakings that remain subject to Solvency II. In future, a distinction will be made between small and non-complex insurance undertakings and other insurers.
Small and Non-Complex Insurance Undertakings
Insurers classified as “Small and Non-Complex Undertakings” (SNCUs) may make use of up to ten proportionality measures. This requires prior notification to BaFin.
Other undertakings that do not qualify as SNCUs may use up to seven of these ten forms of relief. This requires BaFin’s approval. According to BaFin, large insurers that exceed the relevant size thresholds will generally be unable to apply the proportionality measures. This is due to the typically more pronounced risk profile of such undertakings.
The differences can be summarised as follows:
- Following notification, SNCUs may apply up to ten proportionality measures.
- Undertakings not classified as SNCUs may use up to seven forms of relief with BaFin’s approval.
- Due to their risk profile, large insurers will generally fall outside the scope of these measures.
Rules for Insurance Groups
The proportionality rules are not limited to individual insurance undertakings. Insurance groups may also be classified as “Small and Non-Complex Groups” (SNCGs). After completing the notification procedure, they may apply up to ten proportionality measures without any further action being required from BaFin.
According to BaFin, the preliminary procedure is already being used at group level. According to the interview with Ludger Hanenberg of BaFin’s insurance supervision published by BaFin on 29 October 2026, two preliminary applications had been submitted at that time, and two further groups had announced their intention to submit corresponding applications.
Preliminary Procedure Enables an Early Assessment
BaFin offers undertakings a preliminary procedure so that, before the new rules begin to apply, they can determine whether and to what extent proportionality measures may be available to them. The details are set out in Aufsichtsmitteilung 04/2026 (VA) (Supervisory Notice 04/2026 (VA)), published on 13 July 2026. Preliminary notifications and preliminary applications have been accepted since 1 August 2026.
The Supervisory Notice has applied since its publication and will remain in effect until 31 December 2027.
Legal Significance of Early Submissions
BaFin initially treats applications received before 30 January 2027 solely as declarations of intent by the respective undertaking. The authority already reviews the substance of the submitted documents, although no formal review periods apply at that stage.
Before 30 January 2027, undertakings are to receive an information letter setting out BaFin’s preliminary assessment. According to the authority, the first letters have already been sent. Once the new proportionality rules enter into effect, the formal administrative decision will be issued automatically, provided that the notification or application was submitted through the reporting portal.
The proportionality measures may be applied no earlier than 30 January 2027 and only after receipt of the administrative decision. The timing advantage of the preliminary procedure therefore lies in obtaining an early assessment from the authority and achieving expedited formal implementation once the rules begin to apply.
Temporarily Extended Review Periods
BaFin will review notifications and applications received after 30 January 2027 within the statutory time limits. According to BaFin, the review period for submissions received by 30 July 2027 will temporarily be four months rather than two months.
In the authority’s assessment, there is considerable interest within the insurance industry in the preliminary procedure. At the time of that interview, twelve preliminary notifications from SNCUs had been received. These primarily involved property and casualty insurers and captive insurers. In addition, 13 preliminary applications had been submitted by undertakings not classified as SNCUs. BaFin expected a significant increase in submissions over the following weeks.
Changes to Capital Requirements
The revision affects all three pillars of Solvency II. With regard to the Pillar 1 capital requirements, BaFin considers appropriate alignment with the relevant risk to remain essential.
Interest Rate Assumptions Take Additional Market Data into Account
In future, the risk-free interest rate term structure used to value technical provisions will incorporate additional market data. At the same time, the standard formula for interest rate risk will now also take very low and negative interest rates into account.
The framework thus responds to market conditions whose practical significance became particularly apparent during the prolonged period of low interest rates.
Volatility Adjustment Becomes More Risk-Sensitive
The volatility adjustment has also been revised. This instrument is intended to mitigate the impact of investment losses attributable to excessive interest rate spreads. In future, the adjustment will be more closely aligned with the specific risk profile of the undertaking concerned.
Further changes are intended to increase the instrument’s overall impact. This will enable the effects of excessive interest rate spreads on an insurer’s solvency position to be mitigated more comprehensively.
According to BaFin, however, the volatility adjustment may have an excessive effect in individual cases. Overcompensation occurs if the relief generated by the instrument exceeds the market value losses resulting from excessive interest rate spreads. This may create misaligned incentives. BaFin therefore expects insurers to assess the effects of the revised volatility adjustment as part of their risk management.
New Requirements for Foreseeable Distributions
From 30 January 2027, Art. 70a of the amended Delegated Regulation will introduce revised requirements for deducting foreseeable dividends, distributions and charges from own funds. These rules must be taken into account when determining eligible own funds.
Risk Management Remains Crucial
BaFin does not view the changes to capital requirements and capitalisation as entirely positive. In its assessment, some provisions could have been aligned more consistently with risk.
Capital relief may be justifiable to the extent that it reflects the actual risk. In the authority’s view, insurers require sufficient capital buffers, particularly during periods of economic turbulence.
Sound and responsible risk management therefore remains of central importance. Insurance undertakings must continuously monitor their risk exposure and understand their actual capital requirements. This applies irrespective of regulatory capital requirements and is particularly relevant to risks that those requirements do not capture, or do not capture adequately.
Further Need for Changes to Reporting
In BaFin’s view, the Pillar 3 reporting framework could have been revised and reduced more extensively. The authority has therefore announced its own measures concerning national reporting requirements.
The following sets of rules in particular are to be reviewed:
- The Versicherungsberichterstattungs-Verordnung (German Insurance Reporting Regulation) is to be examined for potential amendments.
- The Pensionsfonds-Aufsichtsverordnung (German Pension Fund Supervision Regulation) is also to be reviewed.
- At European level, BaFin intends to continue advocating for simplifications to Pillar 3 before the European Insurance and Occupational Pensions Authority.
Despite the remaining need for amendments, BaFin continues to regard Solvency II as a proven supervisory framework. Nevertheless, the Review will result in far-reaching changes for insurance undertakings and insurance groups, the precise significance of which will depend on their respective classification, risk profile and applicable proportionality measures. For legal questions concerning the supervisory framework, MTR Legal advises undertakings as part of its banking law advisory services.
