EIOPA 2025 Annual Report: Ten Years of Solvency II Under Pressure

Ten years after Solvency II entered into force in January 2016, EIOPA’s 2025 Annual Report arrives not as a victory lap but as a candid inventory of structural fault lines. Balance sheets look resilient on the surface — median SCR ratios stood at 235% for life insurers, 214% for non-life, and 218% for composite insurers at Q2 2025 — yet the same report flags three accumulating risks that the original framework was not designed to absorb: a swelling private-credit book, a trillion-dollar currency mismatch, and AI migrating into underwriting cores faster than regulators can follow.

SCR Ratios Hold, But the Direction of Travel Is Downward

The headline numbers from EIOPA’s financial-stability work are superficially reassuring. EU life-sector gross written premiums grew 13.8% to €758 billion in 2024, while non-life premiums rose 8.2% year-on-year, reflecting both inflationary repricing and genuine volume growth. Profitability metrics improved in parallel: the median return on excess assets over liabilities for EU insurers rose from 8.0% to 9.3% in 2024, while median return on assets improved from 0.6% to 0.7%. On that reading, a decade of Solvency II has produced a capitalised, reasonably profitable sector.

Look at the trajectory, however, and the picture is less comfortable. At year-end 2024, the median SCR ratio for life insurers had already slipped to 230%, down from 246% in Q4 2023, driven by a slight decline in interest rates. The Q2 2025 rebound to 235% partly reflects seasonal factors and does not erase the trend. For industry observers tracking SCR ratio divergence across EU insurers and the widening gap with post-Brexit UK capital rules, the directional sensitivity to rate movements remains the single most important variable to watch through the 2027 transposition window.

The Private Credit Book at Scale: Illiquidity Risk Hidden in Plain Sight

The most pointed warning in EIOPA’s latest Financial Stability Report — a document feeding directly into the Annual Report’s risk assessment — concerns private credit. European insurers held €514 billion in private credit at end-2024, representing 5.1% of total assets; occupational pension funds held a further €128 billion, equivalent to 4.4% of their assets. That aggregate is large enough to constitute a systemic question, not merely a firm-level portfolio choice.

EIOPA’s concern is structural rather than cyclical. Private credit is characterised by higher credit and liquidity risk, valuation uncertainty and hidden leverage, which, if not properly managed, can significantly affect exposed undertakings, according to the authority’s own language. The problem is that Solvency II’s standard formula was calibrated against public fixed-income markets: bid-ask spreads, observable prices, liquid secondary markets. None of those assumptions hold for a €514 billion allocation that does not mark to market daily. This gap sits at the heart of the EIOPA flags on financial stability risks related to private credit, weakening dollar and global conditions published in December 2025, and it is not resolved by Directive 2025/2.

A Trillion-Dollar Currency Mismatch and a Shock Already in Progress

The second structural pressure is more immediate. European insurers and pension funds collectively held approximately €1.8 trillion in US dollar-denominated assets at end-2024, creating significant currency risk amid a notable decline in the US dollar through 2025. Zooming in on the composition, EEA insurers allocate approximately 13% (€1.24 trillion) of direct investments outside the EEA, of which 46% are linked to the United States and 22% to the UK. The concentration in two non-EEA jurisdictions — one experiencing dollar weakness, the other managing post-Brexit capital divergence — means that geopolitical and macro shocks transmit directly into solvency margins without the firebreak of domestic currency hedging.

EIOPA’s mid-year stability alert, which urged insurers and pension funds to remain vigilant about their exposure to geopolitical and market risks, was issued before the full extent of the dollar move became clear. The Annual Report compounds that warning by situating currency risk alongside private-credit illiquidity as twin amplifiers of any adverse scenario. For groups with significant US operations or cross-Atlantic reinsurance programmes — Generali’s diversification approach across European and non-EEA markets offers one reference point for how large groups are positioning — the hedging cost of maintaining €1.8 trillion in dollar assets is no longer a rounding error in the treasury function. Readers tracking Generali’s latest operating result and Europe diversification strategy will find that currency drag is already visible at the consolidated level.

AI in Underwriting: Half the Non-Life Market Already Committed, Governance Unresolved

The third pressure is longer-cycle but arguably the most disruptive. About half of non-life insurers and a quarter of life insurers were already leveraging AI throughout the value chain as of EIOPA’s 2024 market survey. The diffusion is rapid enough that EIOPA’s August 2025 Opinion on AI governance found it necessary to draw an explicit regulatory line: AI systems used for risk assessment and pricing in life and health insurance are classified as high-risk under the EU AI Act. That classification carries real compliance weight — it triggers mandatory conformity assessments, human oversight requirements, and documentation obligations before deployment.

The systemic dimension is what the Annual Report underlines most sharply. While most current AI applications in insurance remain operational, future use cases in underwriting, investment and risk management could amplify existing systemic vulnerabilities, EIOPA warned. In practice, this means that if AI-driven pricing models converge on similar risk exclusions or similar asset correlations, the diversification assumptions embedded in Solvency II’s correlation matrices become unreliable. EIOPA’s Opinion on AI governance and risk management acknowledges this systemic dimension but stops short of proposing new capital add-ons — a gap that the 2025/2 revision also leaves open. For compliance officers monitoring EIOPA’s two-step AI mandate and the approaching implementation deadline with significant penalties, the clock is already running.

Compressed Calendar: DORA Live, AI Act Phasing In, Transposition Approaching

Directive (EU) 2025/2, the first comprehensive Solvency II revision since 2016, must be transposed by all EU member states by 30 January 2027. With eighteen months remaining, the implementation calendar is compressed by two parallel regulatory obligations: DORA, which entered full application and demands ICT third-party risk registers that few mid-tier insurers had operationalised by year-end; and the AI Act’s high-risk provisions, which begin biting at the point when AI systems are placed on the market or put into service — a threshold already crossed by the half of the non-life market that has integrated AI into core processes.

EIOPA’s own supervisory burden-reduction initiative is running in the opposite direction to this complexity. The final report on Solvency II supervisory reporting targets a reduction in reporting burden of at least 25% across all sectors, and 35% for SMEs. The intention is to free up compliance capacity, but smaller undertakings face a paradox: the data they no longer have to report under simplified templates may be precisely the data that national competent authorities need to assess AI-related and currency risks. EIOPA’s 2022 outsourcing peer review illustrated how long remediation takes: 77 recommended actions were issued; by July 2025, 51 had been fulfilled, 22 partially fulfilled, and 4 remained unfulfilled by national supervisors. If governance lags trail that far behind on mature topics like outsourcing, the prospects for timely AI governance compliance are sobering. Supervisors tracking the EIOPA supervisory guidelines locked in for the Solvency II implementation deadline will need to accelerate national transposition work considerably. Enforcement precedents — such as the Bulgarian Dallbogg licence withdrawal and EIOPA’s enforcement coordination role — signal that EIOPA is prepared to act when national supervisors fall short.

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Sources

• EIOPA — Annual Report (annual supervisory review)
• EIOPA — Financial Stability Report (private credit, dollar exposure, global risks)
• EIOPA — Alert on geopolitical and market risk vigilance
• EIOPA — Opinion on AI governance and risk management
• EIOPA — Final Report on Solvency II supervisory reporting burden reduction