Insurers and the EU securitisation reforms: an asset class finally unlocked?

The European Commission’s 2025 reform package marks the most consequential recalibration of the EU securitisation framework since 2019. 

The reforms have a clear objective: reduce capital frictions, deepen market participation, and align prudential treatment more closely with risk - especially for insurers governed by Solvency II for whom the European Commission hopes that the reforms will create opportunities to increase their exposure to illiquid assets. 

The measures span amendments to the Securitisation Regulation, the Capital Requirements Regulation and Liquidity Coverage Ratio rules for banks, and, crucially, a delegated act revising Solvency II’s spread risk charges for securitisation exposures. The Solvency II changes were adopted on 29 October 2025 and are slated to apply from 30 January 2027.

What is changing?

• Reduced spread solvency capital requirements: At the heart of the package is a targeted reduction in Solvency II spread risk charges for securitisation exposures to better reflect actual performance and improve risk sensitivity. This means that senior STS (simple, transparent and standardised) securitisation tranches will be calibrated broadly in line with covered bonds, addressing the long‑standing inconsistency of higher charges for securitisations despite their strong due diligence and transparency overlays. At the same time, non‑STS securitisations will see significant reductions in their capital charges. A distinction between senior and non-senior exposures will be introduced meaning that a senior, investment-grade, non-STS tranche with a typical five-year maturity (such as those in collateralised loan obligations or commercial mortgage-backed securities) is likely to see its capital charge fall by around 60% - 80%.[1]

For senior STS securitisations, new risk factors will be introduced which will align closely with those currently in place for covered bonds across common ratings. This will have the effect of materially compressing the delta that had deterred insurers’ allocations. For example, the proposed per‑year spread solvency capital requirement published by the European Commission will fall to 0.70% for five‑year ‘AAA’ senior STS securitisations, on par with covered bonds.[2] 

• Liquidity ratios to include securitisations: The package of reforms also includes measures to align the treatment of securitisation exposures for insurers with the treatment applied to EU banks under the liquidity coverage ratio (LCR) rules. In short, under the current framework, banks must ensure that they have a sufficient buffer of liquid assets to mitigate the risk from more illiquid assets. The new framework defines level 1, level 2A and level 2B eligible assets, and certain securitisation exposures will now qualify as level 2B. Furthermore, proposed changes to the LCR rules for high-quality liquid assets (HQLA) will allow certain tranches rated A- or above to qualify as HQLA.[3] Taken together, these changes aim to support cheaper issuances and promote secondary market depth.
   
• Lower risk weights: In addition to the changes being made to Solvency II, the package includes amendments to the Capital Requirement Regulation (CRR), the prudential framework applicable to EU credit institutions. Lower-risk securitisation exposures, most often being STS securitisations benefitting from sufficient credit enhancement, will benefit from lower risk weights.

The combined effect of Solvency II relief and bank‑side CRR/LCR changes should expand primary issuance.

What are the implications for insurers? 

For insurers, reductions in capital charges will be a welcome development, enabling them to diversify their portfolios away from traditionally lower-risk instruments, including, for example, government and corporate bonds. The reallocation of corporate and covered bond exposures into senior STS securitisation exposures may help to improve a portfolio’s capital efficiency and risk-adjusted performance, particularly as the market expects that the lower solvency capital requirements and the more risk-based approach to non-STS exposures proposed by the reforms will expand capital-efficient investment opportunities. However, as capital charges for many non-STS and mezzanine securitisations remain materially above bank calibrations, we expect any new increased appetite for participation to be targeted, focusing on senior STS securitisation exposures in the first instance. That said, even modest allocation increases by insurers could be significant relative to the current size of the European securitisation market, helping to support a deeper, more resilient market for the asset class.

Turning to the world of private capital, a world with which many insurers are or are becoming increasingly familiar, it remains to be seen whether we will see an increased appetite for products such as rated note feeders and collateralised fund obligations in light of these changes. Whilst they are certainly positive, development of a rated note feeder product that works for Solvency II-based insurers (compared to their NAIC-regulated peers in the US) remains a work in progress. Meanwhile, interest in collateralised fund obligations continues to grow and there is hope for a deeper market to be established in Europe and the UK during 2026.