Key Takeaways
- • The Solvency II Review, via Commission Delegated Regulation (EU) 2026/2692 which entered into force on 10 March, is expected to apply from 30 January 2027 and lowers the barrier for insurers to hold private equity through the Long-Term Equity Investments (LTEI) framework.
- • Eligible LTEI equity investments carry a 22% Solvency II capital requirement, versus 49% plus Systematic Adjustment (SA) for standard unlisted equities, according to CVC Capital Partners.
- • The reform removes the ring-fencing requirement, shortens the no-forced-sale horizon from ten years to five, extends geographic eligibility to EEA and OECD-headquartered assets, and permits fund-level assessment for unlevered closed-ended AIFs and ELTIFs.
- • European insurers have historically allocated around 2% (life) and 1% (non-life) to private equity, a level CVC attributes largely to the 49% plus SA charge.
- • CVC cautions that capital relief does not eliminate economic risk, and that eligibility must be assessed by each insurer individually; there is no assurance any CVC fund will qualify.
Summary
The Solvency II Review may make private equity more attractive to European insurers by simplifying the Long-Term Equity Investments (LTEI) framework, according to a publication from CVC Capital Partners. Under LTEI, eligible investments attract a Solvency II Capital Requirement (SCR) of 22%, compared with 49% plus a Systematic Adjustment (SA) for non-LTEI unlisted equities. Commission Delegated Regulation (EU) 2026/2692 entered into force on 10 March, with formal application expected from 30 January 2027.
CVC notes that LTEI, introduced into Solvency II in 2019, has seen limited uptake because of stringent and ambiguous eligibility requirements. The reform addresses this by removing the requirement to match LTEI portfolios to a ring-fenced set of insurance liabilities, relaxing the no-forced-sale test so that insurers must demonstrate the ability to avoid forced sales over five years rather than ten, and allowing eligible unlisted assets headquartered in the EEA or OECD countries. For unlevered closed-ended AIFs and ELTIFs with a lower risk profile, eligibility may be assessed at fund level without full look-through. Investments qualifying at the insurer level are also now consistently recognised in group SCR calculations.
CVC states that European life insurers have averaged roughly 2% of assets in private equity and non-life insurers about 1%, citing EIOPA 2024Q4 statistics, largely because of the 49% plus SA charge. CVC argues that LTEI-eligible private equity improves return-on-capital, measured as target annual return divided by SCR, and that reallocating from public equities could improve both risk-adjusted returns and capital efficiency. The firm also says the 22% charge brings private equity closer to the treatment of long-duration corporate bonds, and that pairing LTEI-eligible private equity with interest rate hedging may offer a more capital-efficient approach to asset-liability management, though CVC flags that rising rates can trigger collateral calls and forced asset sales. CVC further notes that the 22% charge compares with roughly 30% under US RBC, about 45% under Bermuda SCR and about 49% under Asia ICS.
Private equity investments do not automatically qualify. Insurers must assess eligibility under the Solvency II Directive, Delegated Acts, EIOPA technical standards and national supervisory practice. CVC says ELTIFs and unlevered AIFs managed by authorised EU AIFMs are most likely to qualify from January 2027, subject to demonstrating no forced sale. Insurers can do so either through Macaulay duration above 9.5 years on illiquid liabilities for life insurers or a 100% liquidity buffer threshold for non-life insurers, or by showing projected cash inflows exceed outflows under base and stressed conditions over five years. CVC concludes that the reform represents a structural inflection point for insurer participation in private markets, while cautioning that disciplined governance and liquidity management remain essential.
CVC notes that LTEI, introduced into Solvency II in 2019, has seen limited uptake because of stringent and ambiguous eligibility requirements. The reform addresses this by removing the requirement to match LTEI portfolios to a ring-fenced set of insurance liabilities, relaxing the no-forced-sale test so that insurers must demonstrate the ability to avoid forced sales over five years rather than ten, and allowing eligible unlisted assets headquartered in the EEA or OECD countries. For unlevered closed-ended AIFs and ELTIFs with a lower risk profile, eligibility may be assessed at fund level without full look-through. Investments qualifying at the insurer level are also now consistently recognised in group SCR calculations.
CVC states that European life insurers have averaged roughly 2% of assets in private equity and non-life insurers about 1%, citing EIOPA 2024Q4 statistics, largely because of the 49% plus SA charge. CVC argues that LTEI-eligible private equity improves return-on-capital, measured as target annual return divided by SCR, and that reallocating from public equities could improve both risk-adjusted returns and capital efficiency. The firm also says the 22% charge brings private equity closer to the treatment of long-duration corporate bonds, and that pairing LTEI-eligible private equity with interest rate hedging may offer a more capital-efficient approach to asset-liability management, though CVC flags that rising rates can trigger collateral calls and forced asset sales. CVC further notes that the 22% charge compares with roughly 30% under US RBC, about 45% under Bermuda SCR and about 49% under Asia ICS.
Private equity investments do not automatically qualify. Insurers must assess eligibility under the Solvency II Directive, Delegated Acts, EIOPA technical standards and national supervisory practice. CVC says ELTIFs and unlevered AIFs managed by authorised EU AIFMs are most likely to qualify from January 2027, subject to demonstrating no forced sale. Insurers can do so either through Macaulay duration above 9.5 years on illiquid liabilities for life insurers or a 100% liquidity buffer threshold for non-life insurers, or by showing projected cash inflows exceed outflows under base and stressed conditions over five years. CVC concludes that the reform represents a structural inflection point for insurer participation in private markets, while cautioning that disciplined governance and liquidity management remain essential.
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