A decade of Solvency II and the review underway
Insurance regulation
Fecha: mayo 2026
Aitor Milner, Ignacio Blasco, Alfredo Yagüe and Moisés Hernández
SEFO, Spanish and International Economic & Financial Outlook, V. 15 N.º 3 (May 2026)
A decade after its implementation, Solvency II has consolidated itself as an international benchmark for risk-based regulation, having delivered higher average solvency, more rigorous internal governance, and greater supervisory convergence across the EU. Practical experience, however, has also exposed structural limitations: the framework′s technical complexity has imposed a heavy regulatory burden, particularly on smaller insurers and notably in Spain, whose compliance costs are disproportionate to their actual risk profiles. The short-term sensitivity of the solvency capital requirement to market movements has likewise sat in persistent tension with the long-term nature of insurance liabilities, generating procyclical pressures and constraining the sector′s ability to channel savings into illiquid and long-term assets — precisely the kind of patient financing that Europe′s green and digital transitions require. The review now underway addresses these imbalances along several axes: a recalibrated extrapolation of the risk-free curve, a redesigned and more entity-specific volatility adjustment, proportionality provisions for Small and Non-Complex Undertakings (SNCUs) and a reduction in the risk margin′s cost-of-capital rate from 6% to 4.75%. The SCR itself is also refined, with preferential treatment for long-term equity investments and a more accurate capture of interest rate risk, including negative rates. Complementing these technical changes, the reform formally embeds ESG and climate risks into governance and reporting, equips supervisors with new macroprudential tools, and updates the rules for cross-border groups. The intent is to preserve the prudential solidity the framework has built while removing the constraints that have prevented insurance from fully functioning as a stable, long-term source of financing for the real economy.