Solvency II review 2027: what changes in the risk margin

From 30 January 2027 the Solvency II risk margin is calculated differently. Two changes do most of the work: a lower cost-of-capital rate and a new time-dependent factor, lambda. Both reduce the risk margin, and the second matters most for long-dated life business.

Where the rules come from

The amending Directive (EU) 2025/2 sets the framework of the Solvency II review. The detail of the risk margin is in Commission Delegated Regulation (EU) 2026/269, which amends the Solvency II Delegated Regulation (EU) 2015/35. It entered into force in March 2026 and applies from 30 January 2027. On 15 July 2026 EIOPA published its final report on the technical standard for simplified calculations of the risk margin, which brings those simplifications into line with the new factor.

Change 1: the cost of capital falls from 6% to 4.75%

The risk margin is the cost of holding capital against non-hedgeable risk until the liabilities run off. That cost is charged at a fixed rate a year. Today the rate is 6%. On the review basis it is 4.75%.

On its own, this scales the risk margin down in proportion. 4.75 divided by 6 is about 0.79, so for the same projected capital requirements the risk margin is just over a fifth lower.

Change 2: the lambda factor

Today each future year's projected SCR counts in full. On the review basis each future year is weighted by an exponential factor that falls with time, so capital needed far in the future weighs less than capital needed soon. The reasoning is that non-hedgeable risks do not stay constant for decades; they tend to fall as the business runs off and can be managed.

The weight has a floor of 50%, so even the longest liabilities keep a meaningful charge. In outline:

Risk margin = CoC × Σ_t SCR(t) × max(λ^t, 50%) ÷ (1 + r_t+1)^t+1

Here CoC is the 4.75% cost-of-capital rate, SCR(t) is the projected capital requirement for year t, λ is the time-dependent factor, set at 96% and reducing each projection year to a floor of 50% (Commission Delegated Regulation on the simplified risk margin, Council document 14846/26), and r is the basic risk-free rate. Check Article 37(1) of the amended Delegated Regulation for the exact definitions before you implement it.

Who sees the biggest change

Business whose non-hedgeable risk runs off slowly: annuities in payment, long-term savings and protection with material longevity, lapse or expense risk. For short-tail business the lambda effect is small, because most of the capital falls in the first few years, where the weight is close to one.

Other changes in the same package

A new method for extrapolating the risk-free curve beyond the last liquid point, with a convergence parameter.
A refined risk correction in the volatility adjustment.
A wider corridor for the symmetric adjustment to the equity charge, and changes to several SCR modules.

Each of these moves the best estimate or the SCR, and so feeds through to the risk margin as well.

What to prepare before the first 2027 reporting

Projected SCRs by year. The lambda factor needs the run-off pattern of each risk module, not only today's SCR. Check that your projection gives it at the granularity you need.
A documented simplification. If you project the SCR with a simplification, check it against EIOPA's revised technical standard and record the choice.
Both bases side by side. Run year-end 2026 on the current basis and the review basis, and explain the movement: the cost-of-capital change, the lambda factor and the curve changes, separately.
Documentation. Update the technical provisions methodology and the actuarial function report.
Knock-on effects. If you use the transitional measure on technical provisions, check how its recalculation interacts with the lower risk margin.

Where AutoImpact stands

Today AutoImpact calculates the Solvency II best estimate on the EIOPA curves, and the mortality, longevity, lapse and expense stresses behind the IFRS 17 risk adjustment. The review-basis risk margin, with the 4.75% cost of capital and the lambda factor, and the standard formula SCR it needs, are the first phase of the roadmap, targeted for Q1 2027. The aim is year-end 2026 and Q1 2027 side by side, with the risk margin change explained.

Sources

This note is general information, correct as at 4 November 2026. It is not legal, accounting or actuarial advice. Check the sources for the current text.