Condor Institutional Regulatory Monitor: Q4 2026 - The capital question

Europe’s insurers are approaching their most significant regulatory overhaul in a decade. The rules promise to release capital and encourage long-term investment. Whether that capital finds its way into European assets is another matter.

SOLVENCY II REVIEW

Revised framework enters into application on 30 January 2027

Status
Level 1 review completed. Level 2 measures, ITS and EIOPA Guidelines entering final implementation phase.

Key developments

• Revised Risk Margin methodology, including introduction of the time-dependent λ factor.
• Revised Volatility Adjustment, including changes to the calculation methodology and safeguards.
• Revised framework for Long-Term Equity (LTE) treatment.
• Changes affecting Matching Adjustment portfolios.
• New requirements on liquidity risk management and macroprudential considerations.
• Revised supervisory reporting and public disclosure framework.

Investment relevance

The immediate portfolio effects should be analysed separately from headline capital relief. The revised Risk Margin affects available own funds; LTE and VA changes can alter relative capital economics between asset classes; liquidity requirements may work in the opposite direction for illiquid allocations.

Condor watch
→ 2026/2027 SCR bridge
→ VA sensitivity before/after reform
→ LTE classification and equity holdings
→ capital released vs subsequent asset allocation

Effective: 30 Jan 2027
Next: first observable balance-sheet effects during 2027.

VOLATILITY ADJUSTMENT

New VA methodology becomes applicable

EIOPA’s revised risk-free rate technical documentation becomes applicable alongside the revised Solvency II framework.

Particular attention should be paid to:

• revised VA calculation;
• credit-spread sensitivity;
• undertaking-specific impact;
• interaction with ALM;
• treatment within internal models;
• revised supervisory expectations for the Dynamic Volatility Adjustment (DVA).

For internal-model users, EIOPA’s revised DVA Opinion also introduces strengthened expectations around modelling and prudency.

Condor watch

The relevant metric is not VA usage alone but dependency:

Reported SCR ratio → SCR ratio without VA

Track distribution by undertaking, country and business model.

This provides the basis for our separate analysis:

The volatility adjustment: from poisoned gift to dependence.

LONG-TERM EQUITY

Easier qualification becomes an asset-allocation question

The Solvency II review revises the conditions applicable to LTE portfolios.

The regulatory issue is shifting from whether LTE treatment is technically available to whether insurers actually reclassify or increase qualifying equity exposures.

Watch

• LTE portfolios / total equity;
• LTE SCR vs standard Type 1 equity SCR;
• new LTE portfolios established after implementation;
• strategic participations vs LTE;
• country concentration.

Potential signal: material increase in LTE designation without comparable increase in total equity exposure.

PRIVATE EQUITY-BACKED INSURERS

EIOPA sets EU-wide supervisory expectations

6 October 2026

EIOPA published a supervisory statement concerning insurers with private-equity-related ownership structures.

Areas of supervisory attention include:

• governance and effective control;
• conflicts of interest;
• related-party transactions;
• investment strategy;
• valuation;
• outsourcing;
• intra-group arrangements;
• complexity and transparency of ownership structures.

Investment relevance

The issue extends beyond PE ownership. Vertically integrated structures combining shareholder + asset manager + asset originator are likely to receive greater scrutiny.

Watch: affiliated asset-management mandates and related-party private-asset exposures.

IRRD

Recovery and resolution architecture moves towards implementation

Technical implementation of the Insurance Recovery and Resolution Directive continues.

Relevant areas include:

• pre-emptive recovery planning;
• resolution planning;
• resolvability;
• cooperation between authorities;
• identification of critical functions.

Portfolio relevance

Limited direct asset-allocation effect, but potentially relevant for:

• liquidity;
• collateral;
• transferability of assets;
• illiquid portfolios;
• derivatives;
• operational dependence on affiliated managers.

Condor assessment: monitor; no evidence yet of a material portfolio-level effect.

DUTCH PENSION TRANSITION

€589bn transitioned by Q2 2026

At end-Q2 2026, 34 Dutch pension funds representing €589bn had transitioned to the new pension system.

Total sector assets: approximately €1.72tn.

Regulatory deadline: 1 January 2028.

The investment question is increasingly empirical rather than legal.

Watch

• hedge ratios;
• swap exposure;
• government-bond duration;
• growth-asset allocation;
• private markets;
• allocation by age cohort;
• pre/post-transition portfolio changes.

Key issue for 2027: whether formal conversion produces observable portfolio changes or merely changes the allocation of investment risk between participants.

Separate Condor Brief analysis:

Dutch pension reform: three years on, what actually changed?

SOLVENCY II REPORTING

2027 creates a break in the data series

Revised supervisory reporting and public-disclosure requirements accompany the Solvency II review.

2026 annual reporting: existing framework.
2027 onward: revised framework.

For institutional analysis, this creates a methodological issue.

Changes in:

• QRT definitions;
• reporting granularity;
• asset classifications;
• proportionality exemptions;

may produce apparent movements that are reporting changes rather than economic changes.

Condor methodology: preserve 2016–2026 taxonomy and construct explicit mapping to post-2027 templates rather than mechanically joining the series.