The Eltif label is emerging as more than a regulatory badge. Under Europe’s revised Solvency 2 regime, it is becoming the most reliable route for insurers to secure and retain lower capital charges in private markets.
The European Union’s reform of the Solvency 2 long-term equity (“LTE”) module is reshaping how insurers approach private markets. With the European Commission’s Solvency 2 Level 2 amendments and the clarification of Eltif 2.0 rules, a new question arises: if both Eltifs and certain low-risk, closed-ended AIFs can benefit from the reduced 22 percent capital charge, where does the Eltif label actually add value? At first glance, the Eltif label and low-risk AIFs appear functionally similar for Solvency 2 purposes. Both can, in principle, qualify as eligible long-term equity investments, and both are expected to deploy committed capital into illiquid assets held over multi-year horizons. Yet their practical and supervisory treatment diverges in subtle but meaningful ways.
The LTE module and the rise of ‘low-risk AIFs’
Under the amended Solvency 2 LTE regime introduced by Directive (EU) 2025/2, insurers benefit from a preferential 22 percent capital charge for qualifying long-term equity holdings. The rules aim to promote investments in Europe’s real economy, particularly sustainable and infrastructure assets.
Commission Delegated Regulation (EU) 2026/269 of 29 October 2025 (“CDR”) goes further by recognizing certain fund vehicles, Eltifs, EuVECAs, EuSEFs, and closed-ended AIFs without leverage, as having a lower risk profile. These funds can, under defined conditions, be assessed for LTE eligibility at fund level, without a full “look-through” into each underlying asset.
For insurers, this is a significant simplification. Traditional private equity AIFs, typically, required detailed portfolio-level look-through analyses to justify LTE treatment. If the fund itself is pre-qualified as low-risk, eligibility can be presumed, subject to diversification and holding-period consistency checks.
The low-risk closed-ended AIF route: possible but demanding
A ‘low-risk AIF’ can indeed benefit from the same 22 percent capital charge as an Eltif. However, this is contingent upon the insurer demonstrating to its supervisory authority that the LTE conditions, strategic long-term intent, ability to withstand market stress without forced sales, and appropriate diversification, are all met.
In practice, that means extensive and ongoing documentation. Supervisory authorities often expect insurers to evidence:
- portfolio cash-flow alignment with liability profiles through the Own Risk and Solvency Assessment (ORSA);
- stress testing of exit schedules under liquidity stress scenarios; and
- consistency between the low-risk AIF’s investment policy and the insurer’s long-term business model.
All of this makes the low-risk AIF route heavily evidence-driven. Each case turns on its specific portfolio composition and on whether national supervisors accept the insurer’s supporting analysis. Moreover, any change in the AIF’s structure, say, a new borrowing facility or a faster distribution pace, can trigger renewed scrutiny.
The Eltif route: regulatory pre-qualification
By contrast, an Eltif-labelled fund benefits from an EU-level regulatory presumption that it is designed for long-term investment. The Eltif framework itself embeds structural features, minimum holding periods, restrictions on leverage, and liquidity-management constraints, that mirror the LTE criteria under Solvency 2.
From the beginning of 2027 onwards, supervisors are expected to start from this presumption: that Eltifs inherently meet the core long-term equity conditions relating to investment horizon, governance, and risk-spreading. The insurer’s task then shifts from proving eligibility to confirming continued compliance.
This subtle regulatory shift carries meaningful operational benefits:
- Lower supervisory intensity: reviews focus on monitoring rather than verification;
- Standardized documentation: fund disclosures and key metrics follow harmonized Eltif templates;
- Reduced re-characterization risk: the risk that a seemingly eligible holding later loses LTE treatment due to interpretative shifts is substantially lower.
Put simply, while both fund types can achieve the same capital outcome, Eltifs provide a safer regulatory path to that destination.
Execution certainty vs flexibility
That said, the Eltif’s strengths, its standardization and structural constraints, also define its limits. The framework imposes tighter boundaries on eligible asset classes, diversification, and borrowing than many low-risk AIFs might prefer. Fund managers seeking broader sectoral exposure or hybrid capital strategies often still opt for non-Eltif labelled AIFs, accepting the heavier evidentiary burden in exchange for flexibility.
For insurers, the choice therefore turns on certainty versus flexibility:
- Execution certainty with an Eltif: eligibility is clear, documentation is standardized, and supervisory acceptance is relatively predictable;
- Structuring flexibility with a low-risk (closed-ended) AIF: broader investment scope, potentially faster distributions, but higher compliance and monitoring overhead.
In most cases, insurers seeking repeatable, long-term allocation programs are expected to favour Eltif-labelled AIFs for their certainty. Conversely, those pursuing niche, opportunistic mandates may still work through non-Eltif labelled AIF structures supported by detailed LTE-compliance evidence.
Outlook: a converging framework
The convergence between Solvency 2’s LTE regime and the Eltif 2.0 framework reflects a broader policy alignment: channeling institutional capital into Europe’s long-term real-economy projects.
The forthcoming CDR will likely entrench Eltif-labelled AIFs as the default long-term equity reference product for insurers. Meanwhile, the inclusion of non-leveraged closed-ended ‘low-risk AIFs’ ensures healthy competition and avoids forcing all private-market structures under a single regulatory label.
Ultimately, the difference is not one of regulatory outcome but of regulatory process. Eltif-labelled AIFs simplify compliance through pre-qualification; low-risk AIFs preserve optionality at a cost of higher supervision.
For insurers balancing prudence with capital efficiency, the Eltif label’s true value under Solvency 2 lies not in extending eligibility, but in making eligibility sustainably demonstrable, and that is precisely what gives it lasting appeal in the evolving LTE landscape.
Sebastiaan Hooghiemstra is a senior associate in the investment management practice group of Loyens & Loeff Luxembourg. Juliane Hurter is an associate in the investment management practice group of Loyens & Loeff Luxembourg/New York. Daan Maas is an associate in the investment management practice group of Loyens & Loeff Netherlands. The law firm is part of the expert panel of Investment Officer.