Examination of Solvency II Revisions and Their Impact on Captive Insurance

Marsh published an article titled "Navigating the new landscape of captive insurance: Insights from the revised Solvency II Directive" (August 12, 2025). The article outlines how upcoming revisions to the Solvency II Directive, effective January 1, 2027, may reshape opportunities for captive insurance companies, especially those categorized as small and noncomplex (S&NC) undertakings. 

According to Marsh, the revised directive introduces proportionality measures that reduce administrative burdens for S&NC captives. For example, own risk and solvency assessments will only be required biennially, and reporting timelines will be extended, giving owners more flexibility to allocate resources. 

Per the article, governance and risk management enhancements are also a focus of the new directive. Updates emphasize board diversity and allow greater flexibility in appointing key functions. Marsh said these changes promote a more adaptive approach to risk oversight, aligning with the evolving nature of risks faced by captive insurance companies. 

The article further noted that the cost of capital for the risk margin will be reduced from 6 percent to 4.75 percent. According to Marsh, this adjustment is expected to release "trapped cash," thereby increasing financial flexibility and aligning the EU framework more closely with similar changes in the United Kingdom. 

Transparency requirements are also addressed in the revisions. Per the article, new rules extend deadlines for quantitative reporting and solvency and financial condition reports, moving from 14 to 18 weeks. Marsh explained that this is particularly advantageous for smaller captives that may lack the reporting resources of larger insurers. 

According to Marsh, these updates mark a pivotal shift in the regulatory environment for captive insurance. By adopting the changes, captives may benefit from a more favorable and flexible operating framework as the revised Solvency II Directive comes into effect in 2027.