Navigating new horizons: the Solvency II Directive amendments and the IRRD

The Official Journal of the European Union amended the Solvency II Directive and published the Insurance Recovery and Resolution Directive (“IRRD”) on 8 January 2025, which entered into force on 28 January 2025. These changes will impact the European insurance market, with the new rules applying 24 months after their entry into force, once Member States transpose the directives into national law.

Amendments to the Solvency II Directive

Solvency II is the prudential regime for insurance and reinsurance undertakings in the EU, effective since January 2016. It protects policyholders by using a risk-based approach to assess solvency through quantitative and qualitative measures, based on a three-pillar risk management framework.

The amendments published in January 2025 aim to supplement and improve certain aspects regarding proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, and group and cross-border supervision. These new rules will enhance the insurance sector by providing long-term private sources of investment to European businesses, making the market more resilient and better prepared for future challenges to safeguard policyholders.

One of the main objectives of the amendments is to increase the proportionality of prudential rules and reduce the administrative burden for smaller insurance and reinsurance undertakings. The amendments introduce the concept of small and non-complex insurance and reinsurance undertakings (“SNCUs”). Among other factors, the criteria for identifying SNCUs depend on whether the undertaking operates life, non-life, or both types of business, as well as the proportion of activities represented by its technical provisions and premiums, in accordance with the criteria set out in Article 29a of the Directive. In particular, the requirements include, but are not limited to:

• No significant cross-border activity (i.e., gross written premium (“GWP”) in other Member States is lower than either EUR 20,000,000 or 10% of the total annual GWP);
• Technical provisions for life insurers not exceeding EUR 1,000,000,000;
• Annual GWP for non-life insurers not exceeding EUR 100,000,000;
• Accepted reinsurance not exceeding 50% of total annual GWP; and
• Compliance with the Solvency Capital Requirement (SCR), whereby undertakings must calculate it using the standard formula.

This framework ensures that only undertakings with relatively simple risk profiles and limited scale are classified as small and non-complex, allowing for proportionate regulatory treatment. Additionally, captives that do not meet the general criteria for SNCU classification may still qualify if they satisfy specific additional captive-related requirements. Where an insurance or reinsurance undertaking meets the criteria for at least two consecutive years prior to classification, it can automatically benefit from proportionality measures, which include:

1. Issuing the regular supervisory report (RSR) every three years or, where permitted by the supervisory authority, up to every five years;
2. Issuing the own risk solvency assessment (ORSA) every two years;
3. Providing simplified quantitative data in the solvency and financial condition report (SFCR), while submitting the full SFCR every three years;
4. Simplifications regarding the calculation of the SCR;
5. Less frequent review of written compliance policies on risk management, internal control, internal audit, and outsourcing, conducted at least every five years instead of annually; and
6. Exemptions from the obligation to prepare a liquidity risk management plan.

For newly authorised undertakings within the last two years, the criteria are assessed based on the last financial year or the initial scheme of operation if authorised within the last twelve months. SNCUs must inform the relevant authority of their classification, and if they cease to qualify as SNCUs, they must notify the authority, which then has two months to oppose the notification.

Another area impacted by the amendments is the reporting requirements. The amendments introduce minimum audit requirements; however, Member States may exempt undertakings classified as SNCUs or captives from these. Notably, in Malta, Chapter 8 ‘Financial Statements and Supervisory Reporting Requirements’ of the Insurance Rules has been amended effective 16 April 2025, whereby captive insurance or reinsurance undertakings are exempt from the requirement for the specific SFCR templates to be audited, unless requested by the competent authority. A similar exemption applies to cells within an authorised insurance undertaking structured as a protected cell company (“PCC”) that exclusively carries on affiliated insurance business.

The Insurance Recovery and Resolution Directive (“IRRD”)

The IRRD aims to better prepare insurers and relevant authorities in the EU for situations of substantial financial distress, enabling early and swift intervention, including across borders. It promotes pre-emptive recovery and resolution planning through a framework of tools and procedures designed to protect insurance policyholders, minimise economic and financial system impact, and prevent the need to use taxpayers’ money.

As part of the pre-emptive recovery planning, the IRRD requires certain insurance and reinsurance undertakings to include recovery plans in their governance systems. These plans must contain prudential financial data, a framework for recovery indicators, possible corrective measures, and a communication plan. These are subject to review and stress testing by the relevant supervisory authority, which may request additional information or modifications. Further guidelines and technical standards will be provided by the European Insurance and Occupational Pensions Authority (EIOPA). In this regard, EIOPA launched two consultations in July 2025 and invited stakeholders to provide feedback by 31 October 2025.

Resolution planning, supervised by resolution authorities, will outline options for applying resolution tools to insurance and reinsurance undertakings that are failing or likely to fail, where no other supervisory measures can prevent failure. These tools include the solvent run-off tool, the bridge undertaking tool, the asset and liability separation tool, the sale-of-business tool, and the write-down or conversion tool. Resolution authorities may use these tools individually or in combination, except the asset and liability separation tool, which must be applied alongside at least one other resolution tool.

SNCUs are exempt from the pre-emptive recovery and resolution planning requirements unless the supervisory authority determines that the undertaking poses a specific risk at national or regional level.

Next steps

The two directives must be transposed into national law by Member States no later than 29 January 2027, with measures becoming applicable from 30 January 2027. Member States will need to update their frameworks in line with the new rules and requirements and develop and implement new resolution policies and procedures.