Solvency – from strength to (even more) strength – Part II

Research evidence excerpt

Solvency – from strength to (even more) strength – Part II

FoundationM

Executive Summary

This is the second iteration of our annual deep-dive into insurance companies' solvency

positions. Our original piece was published on September 4, 2025.

Solvency ratios are a key measure of balance sheet strength for the European Insurance

industry. Looking at reported ratios in isolation, though, does not paint the full picture. For

example, if Company A has a solvency ratio of 180% and Company B has a solvency ratio

of 200%, does that mean that Company B is better capitalised than Company A? In a

nutshell, we believe the answer is No. We need to also understand the underlying quality

of the composition (both the numerator – Eligible Own Funds, and the denominator,

Solvency Capital Requirements) as well as their sensitivities to financial market volatility.

To do this, we have to look at the Solvency and Financial Condition Reports (SFCR) –

essentially an annual report for the underlying detail behind the solvency ratio, for each of

the companies. This edition updates our analysis for the recently published FY25 reports.

We find this topic particularly pertinent right now because, from the end of January 2027,

an updated Solvency framework will be put in action – the biggest overhaul seen since

Solvency II inception back in 2016.

Balance sheet strength continues to push new highs

Using annual SFCR disclosures, we can perform an extensive analysis on the following:

• The extent to which reported solvency ratios benefit from arguably 'softer' long-

term guarantee measures such as the Volatility Adjustment, Matching Adjustment

and Transitionals;

• The composition of solvency capital by tiering and the extent to which there is

spare capacity and how this compares to market cap;