The European Commission has adopted amendments to the Solvency II regime, creating a more supportive environment for long-term equity treatment, a more constructive capital regime for securitisations, and a more nuanced volatility adjustment (VA) framework centred on portfolio-level asset and liability management (ALM) efficiency.
The changes stem from proposals first put out for consultation in mid-2025 and were formally adopted on October 29, 2025, a development we previously wrote about. Commission Delegated Regulation (EU) 2026/269 amends Delegated Regulation (EU) 2015/35, entered into force on March 10, 2026, and applies from January 30, 2027, aligned with Directive (EU) 2025/2 on the Solvency II review.
Improving Balance Sheet Efficiency
For life and general insurers, the forthcoming Solvency II reform introduces three changes with direct implications for investment portfolios.
The first concerns Long-Term Equity Investment (LTEI) qualification, which is simplified to make the treatment more usable in practice. Insurers must still evidence that they can avoid forced selling and genuinely hold the assets over the long term, but the qualification bar itself becomes easier to clear.
The second relates to securitisations. Upcoming reform will introduce lower spread capital charges for simple, transparent and standardised (STS) and highly rated non-STS securitisations, improving their relative capital efficiency and widening the pool of assets insurers can hold efficiently.
The third reshapes the volatility adjustment (VA) framework, moving from a pure country VA to a macroeconomic VA. This reduces cliff-edge effects between jurisdictions and places greater emphasis on portfolio-level asset-liability management, rather than treating VA as a static, country-specific add-on.
Taken together, these changes should improve balance sheet efficiency across the industry, pointing to a potentially more supportive regime for selected long-term risk assets. Realising that benefit, however, will require proactive changes to asset allocation rather than passive adoption, from (re)scoping the investment universe to strengthening ALM practices.
Asset Allocation Impact on Life Insurers
The LTEI changes could support a measured increase in equity allocations among life insurers whose liabilities are demonstrably long-dated and resistant to forced selling. In practice, annuity and group life writers appear best positioned because the duration threshold and low lapse/mortality SCR test are structurally easier for them to satisfy than for protection-oriented life portfolios. As the LTEI classification becomes easier to obtain and defend, the favourable capital treatment should improve the relative attractiveness of public and private equity exposures held for long-term return generation rather than liquidity management.
Impact on General Insurers
In addition, the updated LTEI framework may also create opportunities for general insurers to access reduced capital charges, although the practical application will depend on each insurer’s ability to evidence robust liquidity management.
Under the current regime, LTEI qualification has generally been difficult for general insurers because their liabilities are typically shorter-dated and less naturally aligned with long-term equity holdings. The revised framework introduces a liquidity buffer methodology specifically to address this topic and give general insurers a route to qualification.
Rather than relying primarily on liability duration, this approach focuses on whether the insurer can demonstrate sufficient liquidity to avoid forced sales over the relevant assessment period. This could make LTEI treatment more accessible to selected non-life insurers, particularly those with strong liquidity governance and well-documented asset-liability management processes.
The graph below shows the impact in terms of overall return on SCR of selling 1% of a “traditional” asset allocation of a European life insurer and investing into various asset classes. For example, private equity classified as LTE would add 7bps of returns for c.15bps increase in SCR.
Overall Return on SCR Looks Attractive
Impact on Return and SCR of Reallocating 1% of Listed Asset Classes
Source: Neuberger, Bloomberg-Barclays, J.P. Morgan, Morningstar LSTA, FTSE Nareit, NCREIF, Burgiss, infraMetrics, Risk returns are estimated on a forward-looking basis using our intermediate-term capital market assumptions (see CMA disclosure at the end of the article). All USD returns are assumed hedged to EUR via 3-month forwards: -1.54% USD to EUR as of June 30, 2026. Past performance is no guarantee of future results.
The Benefits to Securitised Products
The more immediate portfolio effect may come from securitisations. Lower-spread SCR charges significantly improve the capital-adjusted economics of STS securitisations and senior CLO tranches. This matters because many insurers already seek incremental yield through illiquidity and complexity premia but historically faced a capital penalty that limited position sizes. With revised calibration, structured credit may become a more efficient way to harvest spread while remaining within certain capital and rating constraints.
The graph below compares the return on SCR with the old and new/expected rules.
Lower Spread SCR Charges Improve the Economics of Select Securitisations
Return on SCR for different fixed income instruments
Non-Euro assets are hedged to EUR using 3-month forwards (-1.54% USD to EUR for 2026 & -1.64% USD to EUR for 2025); Source: Neuberger, Bloomberg-Barclays, J.P. Morgan, Morningstar LSTA, FTSE Nareit, NCREIF, Burgiss, infraMetrics; 2026 analytics are as of 30/06/2026, 2025 analytics are as of 31/12/2024. Euro and US Public ABS are assumed to be STS. For CLOs, AAA is assumed to be senior and the rest as non-senior. IMPORTANT: The performance and risk projections/estimates are hypothetical in nature and reflect the Neuberger's Capital Market Assumptions. The estimates do not reflect actual investment results and are not guarantees of future results. Actual returns and volatility may vary significantly. Asset classes are represented by benchmarks and do not represent any Neuberger investment product or service. Please see Additional Disclosures at the end of the presentation for asset class and index definitions, terminology definitions and Neuberger Capital Market Assumptions. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
Implications for ALM
The LTEI forced-selling cashflow test increases the strategic importance of liability cash-flow modelling. Qualifying for favourable equity treatment under this method is no longer only a matter of balance-sheet intent; insurers must be able to demonstrate resilience of projected inflows versus outflows over five years under base and stress scenarios.
The VA reform also reinforces ALM discipline. The new CSSR is assessed at the overall ALM level, which encourages insurers to manage duration matching as a portfolio construction problem rather than a security selection exercise.
In practical terms, insurers that align asset duration, spread sensitivity and liability behaviour more effectively should be better positioned to capture the benefit of the higher 85% application ratio.
The upcoming Solvency II recalibration is likely to reshape European insurer ALM primarily on the asset side rather than the liability side. In practice, this means rotating into senior CLO and ABS tranches, which offer spread pickup with lower correlation to existing corporate bond holdings and diversified risk profile, improving diversification and return on capital without a proportional increase in capital consumption.
Conclusion
Overall, the revised Solvency II framework points toward a more supportive environment for long-term equity treatment, a more constructive capital regime for securitisations and a more nuanced VA framework centred on portfolio-level ALM efficiency.
For European insurers, the likely implication is not a wholesale re-risking of balance sheets, but a more selective reallocation toward assets that offer stronger capital-adjusted returns and better alignment with liability profiles. The greatest benefits are likely to accrue to insurers that can combine investment flexibility with robust evidence of liquidity resilience, ALM diligence and governance discipline.
In practice, the reform should reward insurers that treat asset allocation and ALM as an integrated balance-sheet optimisation exercise rather than siloed processes on the two sides of the balance sheet.
