Updated Solvency II Delegated Acts – Part 3: Pillars II–III and Group Solvency

System of governance

• Risk Management - The updated Delegated Acts enhance governance requirements by explicitly including gender balance and diversity in the assessment of management bodies. It also extends the recognition of expected future profits (EFP) to fees for asset managers of unit-linked funds, and permits offsetting between homogeneous risk groups, which can lower the BEL. These changes aim to align prudential standards with evolving governance expectations and provide greater consistency in technical provisions.
• Internal Audit - The updated Delegated Acts retain the core tasks of the internal audit function. However, the proportionality provision that previously allowed internal audit staff to perform other key functions has been removed, tightening the separation of duties. This change strengthens governance by ensuring a clearer and more independent role for the internal audit function.
• Remuneration – New changes strengthen the governance around variable remuneration by requiring deferred pay to vest gradually on a pro-rata basis. They also introduce sustainability and performance-based conditions for vesting and mandate malus and clawback arrangements, allowing up to 100% of variable pay to be reduced or recovered in cases of poor financial performance or misconduct. In addition, the amendments introduce a de minimis exemption to the deferral of variable remuneration. Where the variable component does not exceed €50,000 and represents no more than one third of the individual’s total annual remuneration, undertakings may apply an exemption from the standard deferral and pro-rata vesting rules. However, supervisors retain the discretion to override this exemption if they consider its application inconsistent with prudent risk management. This ensures proportionality in implementation while preserving supervisory safeguards. These amendments align Solvency II more closely with broader EU remuneration rules, promoting prudence, accountability, and risk alignment.

Capital Add-ons

The updated Delegated Acts streamline the regulation by removing references to Member State approval and applying directly to cases where supervisory approval is already granted. Supervisors may impose a capital add-on only when deviations from the underlying assumptions of matching adjustment, volatility adjustment, or transitional measures are temporary and do not justify revoking approval. This ensures consistency while clarifying the scope of supervisory intervention.

SFCR - The SFCR has been revised under the updated Solvency II framework to better meet the needs of different audiences. It now features two distinct sections:

• For policyholders, a concise maximum 5-page section focusing on key areas like business performance, capital management, and risk profile, along with clear definitions of solvency requirements to aid understanding. Additionally, insurers must provide translations of the policyholder section upon request in the official language of the policyholder’s member state
• For market professionals, the report includes in-depth disclosures covering governance, valuation methods, capital management, risk profiles, and sensitivity analyses to shocks such as equity & property value fluctuations (+/- 30%), risk free rate changes (+/- 50 basis points) and credit spread changes (+/- 100 basis points).  Additionally, insurance undertakings must now also report on their sustainability plans, including any significant exposure to climate-related risks and the management actions taken to address these risks, aligning with broader EU regulatory standards

In addition to these content changes, the amendments introduce stricter technical requirements for the SFCR. Reports must be published in a machine-readable format to facilitate accessibility and comparability, and insurers are required to retain published SFCRs for a minimum of five years. Even in years without material changes, undertakings must provide confirmation updates, ensuring continuous transparency and supervisory oversight.

RSR – Under the updated Delegated Acts, the RSR must include detailed elements such as SFCR, ORSA supervisory report, and quarterly/annual QRT with a standardized structure. The amendments also expand disclosures on business performance, including strategic objectives and forward-looking financial projections and enhances governance disclosures, requiring detailed information on board structure, remuneration, risk management, internal audit, actuarial functions, and outsourcing.

The updated Delegated Acts also refine valuation disclosures, focusing on assumptions, sensitivity, and justification of alternative valuation methods and significantly expand capital management disclosure requirements within the RSR. It now requires detailed information on own funds, including deferred tax assets and liabilities, assumptions, sensitivities, and the treatment of future taxable profits. Disclosures on SCR and MCR must cover expected developments, immaterial risk approaches, and the stress on deferred tax loss-absorbing capacity. For undertakings using internal models, the report must explain profit and loss analysis by business-unit and link it to risk categorization.

It also introduces new disclosures on long-term equity investments, strengthened liquidity risk information, and details on risk concentrations, off-balance sheet exposures, and risk mitigation techniques. Additionally, reporting must address risks not captured in the SCR, stress testing, and any foreseeable issues with SCR/MCR compliance, enhancing transparency and supervisory oversight.

In addition, the revised rules impose clearer procedural requirements for the RSR. Reports must follow a standardised structure and be submitted within set deadlines, ensuring consistency across undertakings and jurisdictions. Even when there are no material changes in a given year, firms must submit a confirmation update rather than omitting the report altogether. These measures are intended to improve supervisory oversight, reduce gaps in information, and enhance the comparability and reliability of disclosures.

Proportionality – It extends proportionality measures beyond “small and non-complex” insurers to larger but low-risk undertakings. It sets tailored capital requirements for intangible assets beyond traditional market or counterparty risks.

Qualified insurers can reduce the frequency of supervisory reports, combine key control functions, and review governance policies less often. Additionally, they may perform Own Risk and Solvency Assessments (ORSA) biennially and simplified valuation methods can be used for life insurance obligations with immaterial options or guarantees. Lastly, certain insurers may be exempt from preparing detailed short-term liquidity risk plans if liquidity risks are low and the business remains straightforward.

However, to qualify for proportionality measures, undertakings must meet specific criteria including quantitative thresholds such as life technical provisions not exceeding €12 billion, non-life gross written premiums below €2 billion, and a market share under 5% in their home member state. They must demonstrate resilience to current and future risks, operate a non-complex business model, and have no ongoing supervisory measures or unresolved governance concerns. Additionally, they must exceed the SCR by an appropriate margin. Where applicable, undertakings need to provide evidence of immateriality for options and guarantees or demonstrate low liquidity risk.

SCR

The updated Delegated Acts introduce important clarifications and new requirements to ensure consistent and transparent capital calculations across insurance groups.

• Strategic participations included in group solvency calculations by consolidation (Method 1) are no longer deducted again from own funds, preventing double counting. The Delegated Acts also clarify the treatment of encumbrances in this context, aligning definitions with Article 222 to ensure consistent own funds recognition.
• Group supervisors must now consider the group’s planned integration techniques for entities not covered by internal models, ensuring comprehensive risk integration. Groups using partial internal models are required to document why the chosen integration techniques are appropriate and why alternatives were not used, strengthening transparency and supervisory oversight.
• Additionally, a specific formula has been introduced for calculating minority interests exceeding their contribution to group solvency, adding clarity and standardisation. This is now explicitly codified in the Delegated Acts to provide a consistent approach across undertakings.
• Transitional recognition allows own-fund items issued before group acquisition to count towards compliance for a limited period (less than 2 financial years), mitigating capital costs from mergers. However, this relief is subject to supervisory approval and requires the ORSA to demonstrate ongoing SCR compliance during the transition period.
• The scope of participations and consolidation methods has been expanded to explicitly include holdings such as third-country insurers, with updated definitions and calculations for related undertakings under different methods. New rules also address mixed-method solvency calculations, including conditions for proportional consolidation to ensure consistency.
• Long-term equity investments at the group level are generally limited to solo amounts, but supervisors can require adjustments if significant liquidity risks or intragroup transactions exist.

• A simplified approach is now available for immaterial related undertakings to reduce administrative burdens.

Internal models

The new rules mean that if a group uses a partial internal model, it must clearly show with detailed documentation how the risks from any excluded entities are still captured in the overall group SCR calculation. Companies also need to explain why they chose a particular method and why it’s more suitable than other options. This change is aimed at improving transparency and helping supervisors ensure that all risks are properly reflected.

Group disclosures

• SFCR – Group SFCR will be governed by the same requirements as individual undertakings. However, additionally it also focuses on material intra-group outsourcing and disclosure requirements on own funds which must include clearer details on restrictions on fungibility and transferability. The Delegated Acts also require that the Group SFCR follows a standardised structure (Annex XX), ensuring comparability across jurisdictions.

The updated rules clarify how group and subsidiary information must be structured in the SFCR, ensuring consistency across levels. Subsidiaries can only rely on group-level disclosures if the information is fully equivalent and not targeted at policyholders. In addition, group-level information cannot substitute the policyholder-focused section, which must remain tailored to end-users. National supervisors may also require translations of the policyholder section into official languages on request, further aligning with consumer protection objectives.

Group supervision

• Reporting – Under the updated Delegated Acts, exemptions are expanded allowing groups to forego item-by-item reporting under certain conditions, while the content of simplified reports has been narrowed to focus mainly on material undertakings and intra-group transactions. Governance disclosures are also enhanced to cover consistent risk management procedures across the group and material intragroup outsourcing arrangements. The new rules also clarify that reports must follow a standardised format, with prescribed deadlines, and groups must retain reports for a minimum of five years. Even where no material changes occur in a reporting year, a confirmation update must still be submitted.

Capital management reporting has been clarified with a structured format and explicit calculations related to own funds and SCR. Furthermore, a new framework for a “single regular supervisory report” (single RSR) has been introduced, which integrates group and subsidiary-level information with a common standardized structure to avoid duplication. This option removes certain outdated transitional provisions, giving supervisors and undertakings a clearer, unified reporting baseline.

• Proportionality – Proportionality rules for groups (both, small & non-complex and non-small & non-complex) apply in same way as proportionality rules under solo / individual level. However, the group supervisor must assess business model complexity, considering the group structure; number of jurisdictions; revenue share from cross-border activities; scale of non-insurance entities within the group; and materiality of intra-group transactions. The Delegated Acts introduce new articles spelling out these conditions, including capital requirement tests for intangibles, ensuring proportionality measures are only applied where risks remain demonstrably limited.

The recent amendments to the Solvency II Delegated Acts and Directive modernise the framework and address key gaps identified in the review. Although the changes will not apply until January 2027, regulators expect (re)insurers to start assessing their impact well in advance.

At Finalyse, our actuarial and risk management experts can help you prepare through our comprehensive Solvency II Review Service — a structured, two-phase approach designed to assess your readiness and support implementation.

• Phase I – Impact & Readiness Assessment: We identify items in scope for you -  capital, models, data, reporting — and deliver a concise Readiness Report highlighting key priorities.
• Phase II – Governance & Implementation Alignment: We help align internal models, data flows and reporting frameworks with updated Solvency II requirements, update ORSA and governance structures, and prepare a Board-ready Implementation Action Plan.

These phases are supported by:

• Gap Analysis – Comparing your current framework against the latest regulatory requirements and identifying critical gaps.
• Roadmap Development – Designing a clear, practical roadmap with milestones for integrating the changes.
• Workshops & Upskilling – Equipping key stakeholders with the knowledge and skills to apply the new requirements.
• Strategic Advisory Support – Explaining how the amendments affect your ORSA, risk management, reporting, and long-term planning.