Credit ratings agency Fitch Ratings said solvency capital ratios for EU insurers with significant property risks could rise if the European Insurance and Occupational Pensions Authority puts forward proposals to reflect natural disaster adaptation measures more directly within the framework of a standard formula.
The agency views the expected revision as credit positive, while stressing that any improvement in capital metrics is unlikely to be material from a ratings perspective.
Fitch Ratings said the explicit inclusion of adaptation measures in the Solvency II regime will enable reported solvency positions to better reflect insurers’ efforts to reduce vulnerability to natural disaster events.
The agency said this would increase risk sensitivity within the prudential framework and encourage risk-reducing investments. However, Fitch Ratings does not expect that the potential improvement in the Solvency II ratio itself will result in a material change in the ratings.
Fitch noted that a January 2026 consultation by the European Insurance and Occupational Pensions Authority outlined a range of options aimed at more closely aligning capital requirements with adaptation initiatives such as flood protection infrastructure.
As highlighted by Fitch, the proposals include reflecting adaptation measures in periodic reviews and recalibrating standard formula parameters, allowing the use of specific parameters for certain sub-modules and risk factors, treating adaptation as a form of risk mitigation under Solvency II, introducing additional parameters in the standard formula and clarifying the treatment of such measures in internal or partially internal models.
The agency believes there are practical complexities in converting adaptation measures into capital allowances. The agency stressed that reliable and consistent data is critical for implementation, which could pose challenges for smaller insurers that apply standard formulas rather than in-house models.
Fitch further notes that adaptation measures may increase insurance value, as rebuilding to higher resilience standards may increase replacement costs. Fitch explained that this could increase natural disaster capital charges within the standard formula. While lower expected losses are likely to lower premiums per unit of risk in the non-life premium risk module, Fitch Ratings believes this impact may only partially offset higher catastrophe expenses.
Fitch Ratings noted that the consultation period lasts until April 17, 2026, and does not expect any reforms agreed at EU level to be rolled out before 2027.
The agency believes that even if implemented, marginal reductions in the capital cost of certain property insurance are unlikely to materially stimulate demand. Fitch notes that recent changes to the calculation of natural catastrophe capital requirements under the Solvency II enabling regulations, which will take effect in early 2027, may partially offset improvements in solvency ratios.
Additionally, Fitch commented that some policyholders may continue to view natural disaster insurance as costly or unnecessary, particularly given the assumption of state support in the event of a major loss.
The agency expects the role of mandatory natural catastrophe schemes and state-backed reinsurance arrangements to expand across Europe, the Middle East and Africa as climate-related risks increase and private reinsurance capacity is tested.
Nonetheless, Fitch believes protection gaps are likely to persist, and extreme or correlated events could even put pressure on well-established mechanisms.
Fitch Ratings also reiterated that natural climate risks are increasingly considered when assessing insurers’ credit profiles, driven by climate change and rising asset values. Fitch Ratings uses its Climate Vulnerability Signal (Climate.VS) criterion to assess the extent to which an issuer’s creditworthiness may be exposed to long-term transition and natural climate risks.
While Climate.VS is calculated on a rigorous basis, Fitch Ratings incorporates recognized risk mitigation measures into its analysis of key rating drivers and their ultimate impact on the rating.
