Key Changes Arising From Agreed Amendments To Solvency II

Following on from the announcement that the European Council and Parliament had agreed on the amendments to Solvency II in December 2023 (see my previous post for details), the agreed amendments were published in January 2024. The headline points from the amending legislation are:

• Risk margin/cost of capital – the assumed cost of capital rate for calculating the risk margin will be 4.75% (down from 6% currently). This rate will be reviewed by the Commission periodically, but no earlier than 5 years after the date of application. The Commission can then change the assumed rate to a level between 4% and 5%. In addition, as expected, an exponential and time dependent element is being introduced, to account for the time dependency of risks, reduce the sensitivity of the risk margin to interest rate changes and reduce the amount of the risk margin (particularly for long-term liabilities – so good news for life insurers). It seems that this is the Council