Expert view: Solvency II Directive - what insurers need to know by 2027

In insurance, regulatory change has been a constant over the past three decades - and once again, the sector is entering a decisive phase.

In a recent study, `Reaching new heights: CEE strategic resilience in insurance: outlook 2025`, our colleague Alina Simion, Audit Director, shares her perspective on the 2025 Solvency II reforms and their implications for CEE insurers. Drawing on Forvis Mazars’ international expertise and regional experience, this article explores how the revised framework strengthens financial resilience, introduces proportionality measures and sets clearer expectations for governance, risk management, and reporting ahead of the 2027 implementation.

The amendments to the Solvency II Directive, published in January 2025 and effective from January 2027, mark a significant evolution of the EU insurance regulatory framework. The reform is designed to strengthen insurers’ financial resilience, better address systemic, climate and macroeconomic risks and introduce proportionality measures to reduce compliance burdens for smaller and non-complex undertakings, particularly relevant for the CEE market.

Under Pillar I, the revised quantitative requirements introduce material changes to interest rate risk assessment and capital calculations. Key measures include a new First Smoothing Point (FSP) approach for extrapolating risk-free interest rates, a recalibrated volatility adjustment with increased application ratios and entity-specific parameters and a revised interest rate shock methodology that may increase capital requirements depending on market conditions. The reform also reduces the cost of capital rate used in the risk margin calculation and enhances eligibility criteria for long-term equity investments, supporting long-term investment strategies while improving balance sheet stability.

Pillar II enhancements significantly expand governance and risk management expectations. Insurers must now integrate macroprudential risks, cybersecurity risk and sustainability considerations more explicitly into their ORSA and strategic planning processes. Climate risk requirements are strengthened through mandatory long-term scenario analysis, while supervisory authorities gain enhanced intervention powers aligned with the Insurance Recovery and Resolution Directive (IRRD). Governance standards are also reinforced through diversity requirements, increased oversight of key function holders and clearer supervisory escalation mechanisms, alongside simplifications for smaller entities.

Under Pillar III, reporting and disclosure requirements are strengthened to improve transparency and reliability. Key changes include the introduction of mandatory audits for Solvency II balance sheets and a revised structure for the Solvency and Financial Condition Report (SFCR), supported by extended reporting deadlines. In CEE markets, these changes are expected to drive improvements in governance and controls, with potential efficiencies for insurers already aligned with IFRS 17 requirements.

The reform places strong emphasis on proportionality, offering meaningful relief for small and non-complex undertakings (SNCUs). Eligible insurers may benefit from simplified valuation approaches, flexible governance structures, reduced ORSA frequency, streamlined reporting obligations and, in some cases, audit exemptions. These measures are particularly relevant in CEE countries, where local market maturity and insurer size vary significantly.

As implementation approaches, insurers will need to conduct detailed impact assessments, strengthen risk management and reporting capabilities and review investment strategies to align with the revised capital framework. For CEE insurers, the reform presents both operational challenges and strategic opportunities, especially in light of increasing climate-related exposures and enhanced cross-border supervisory scrutiny. Institutions that proactively adapt their frameworks will be better positioned to meet regulatory expectations and enhance long-term resilience.

Forvis Mazars believes the 2025 Solvency II amendments offer CEE insurers a clear opportunity to strengthen resilience and governance. By proactively adapting to the revised capital, risk management and reporting requirements, institutions can turn regulatory change into a strategic advantage, positioning themselves to navigate emerging risks and unlock growth in an increasingly complex market.

Read the full view here.