The German insurance market: opportunities and considerations for fund managers

The German insurance market is one of the largest in Europe. With insurance assets of €1.9tn, insurers represent the largest institutional investor group in Germany¹. Across German institutional investors, allocations to alternative investments continue to grow, increasing from 23% to 30% over the past two years², with insurers allocating more extensively than other investors³.

For fund managers looking to access this pool of capital, understanding the regulatory landscape is essential. Insurance investors are typically categorised by the regulatory regime that applies to them, namely either Solvency II or the German-specific “AnlV” Investment Regulation (Anlageverordnung). In theory, Solvency II applies to large insurance companies and AnlV to "small" insurers and certain types of pension schemes (Pensionskassen or Versorgungswerke). However, this distinction is not always straightforward in practice.

Although most insurers are, due to their size, subject to Solvency II, a key feature of the German market is the significant role played by the AnlV investment restrictions. This regulation is also often voluntarily adopted by large Solvency II insurers, typically where groups operate pension schemes or have smaller insurers within their group, leading them to apply AnlV across the board. As a result, it is estimated that over a third of German investors align with AnlV⁴. Several of these are pension schemes, which account for over €500bn in assets under management, making them the second-largest investor group in the country⁵.

This article provides a brief overview of key considerations for private capital managers looking to raise capital in Germany. 

Key considerations for marketing to Solvency II investors

SCR and capital efficiency

Solvency II investors are not restricted by quantitative limits on asset classes. Instead, investors must maintain regulatory capital reserves which are proportionate to their investment risk. A key aspect to determine the "capital charge" of an investment is to calculate the Solvency Capital Requirement (SCR). The SCR can be calculated either using the standard formula prescribed under Solvency II or an approved internal model. While the standard formula applies uniform risk factors and stresses, internal models allow insurers to reflect their specific risk profiles and can result in more risk-sensitive – and in some cases lower – capital requirements, subject to regulatory approval.

In general, the SCR rules are meant to favour lower-risk investments that minimise the SCR. However, investors also consider the SCR efficiency of their investments, i.e. how much return an investment gets per solvency capital required. Sponsors can facilitate the investment decision by providing indicative SCR calculations (under the standard formula) including the product's SCR efficiency.

Private debt

The SCR calculation for private debt loans is mostly determined by their spread risk characteristics, in particular duration and credit quality. For private debt managers, providing accurate calculations of duration is the best way to reduce the capital charge associated with their products. Where a rating of BBB or above is achievable, obtaining external ratings can also be helpful.

Private equity

For private equity, the SCR depends on whether the investment is classified as Type 1 (39% charge) or Type 2 equity (49% charge). Type 1 includes equities listed on regulated markets in the EEA or OECD, as well as unlisted equities held in closed-ended, unlevered EEA AIFs. Type 2 covers other unlisted equities and cases where look-through is not available.

Impact of upcoming Solvency II amendments

Long-Term Equity Treatment

In theory, since 2019, certain private equity investments could qualify as long-term equity (LTE) benefitting from a reduced capital charge of 22%. However, only 1% of European insurers’ equity portfolios have so far benefitted from this provision, due to strict eligibility criteria⁶. The 2027 Solvency II amendments are expected to relax the LTE eligibility criteria significantly. Key changes include the removal of ring-fencing requirements (which previously required assets to be matched to a separately identified pool of liabilities) and the introduction of fund-level assessment (as opposed to detailed look-throughs) for certain structures, such as ELTIFs and unlevered AIFs. The European Insurance and Occupational Pensions Authority (EIOPA) estimates that at least €22bn of additional equity will become eligible for preferential treatment as a result⁶. 

For most private equity funds, obtaining LTE status through a full look-through is impractical. Qualifying at the fund level would be more beneficial, but the two main routes each carry trade-offs. Under the AIFMD commitment method, unlevered AIFs may use derivative instruments for hedging purposes and utilise short-term capital call facilities backed by investors’ commitments, but they cannot employ any other form of leverage – crucially excluding NAV financing, which has become an important financing tool for many private equity funds. This contrasts with ELTIFs, which allow leverage (up to 100% for professional ELTIFs) but carry the additional burden of being a regulated product. Although the ELTIF market has evolved in recent years to become more streamlined – today a professional ELTIF in Ireland can be approved within 24 hours – it is still a departure for managers accustomed to operating solely through unregulated structures.

For managers considering open-ended ELTIFs, the LTE rules can add complexity. Open-ended ELTIFs offer periodic redemption rights, making it difficult to maintain the requirement that equity within the relevant investments be held, on average, for more than five years. One solution is to create dedicated share classes with lock-up periods that satisfy this requirement. Managers may also choose to set up separate sub-funds for insurance investors, which helps avoid the governance challenges that can arise from combining different types of investors in the same structure.

There remains uncertainty as to whether the relaxation of the LTE criteria will be sufficient for insurers to benefit meaningfully from the preferential capital treatment. Although formal ring-fencing has been removed, assets are still required to be “managed separately from the other activities of the undertaking” and insurers must demonstrate their ability to avoid forced sales over a five-year horizon using one of two prescribed methodologies: either a balance-sheet-based approach, requiring the value of illiquid, long-duration liabilities to exceed that of the long-term equity investments, or a forward-looking cash flow test showing inflows exceed outflows under stress in each of the next five years. In practice, these requirements may still present a significant operational burden – particularly for German insurers, whose accounting rules have historically made asset segregation difficult to implement. Nonetheless, sponsors should factor this into discussions with insurers, as, if successful, it could materially reduce capital charges and support greater capital deployment.

Securitisation

Senior securitisation tranches currently face disproportionately high capital charges compared to corporate or covered bonds. The 2027 amendments seek to correct this by calibrating senior STS (simple, transparent and standardised) tranches broadly in line with covered bonds and introducing significantly lower capital charges for senior non-STS tranches – with reductions of around 60-80% for a typical senior, investment-grade tranche with a five-year maturity. This may support greater investor demand for rated note feeders and similar securitised structures, although the overall impact will depend on how these Solvency II changes align with the forthcoming revisions to the EU Securitisation Regulation, which remain under negotiation. For more information, read our article: Insurers and the EU securitisation reforms: an asset class finally unlocked?.

Key considerations for marketing to AnlV investors

Quotas and eligibility criteria

Unlike Solvency II, AnlV investors are restricted in their asset allocation based on eligibility criteria and quotas. These quotas limit the percentage an investor can allocate to certain asset classes – private equity, for example, cannot exceed 15% of the insurer's guarantee assets. For private funds, the eligibility criterion that is most often a challenge is that any units/shares in closed-ended investment funds must be freely transferable. However, this can typically be achieved through a side letter.

Private debt

Private debt investments can be impacted by different quotas depending on how the investment is classified. This is relevant as it can give sponsors access to different and potentially larger pools of capital. Sponsors must identify which investment category their product falls within and assess how much headroom prospective LPs have under the relevant quota. Adapting side letters and fund structures may be possible to find a better fit between the sponsor's product and the insurer's quota allocation. Rated note feeders are often mentioned in this context (driven by US insurance regulations); however, sponsors should avoid pre-emptive structuring as these are often expensive structures and may not be required.

Infrastructure allowance

A recent development under AnlV is the introduction of an additional 5% infrastructure allowance (introduced in 2025). This is not a standalone quota, but rather an additional headroom that applies regardless of the investment category into which the infrastructure investment falls. For example, the private equity quota can effectively be extended to 20%, provided that 5% is allocated to infrastructure equity.

This new allowance has directly increased capacity for infrastructure investments, but also indirectly benefits other alternative asset classes by freeing up space within existing quotas.

Spezialfonds

Additionally, both Solvency II and AnlV investors frequently invest through Spezialfonds, which are German-regulated investment vehicles (typically structured as separately managed accounts) that allow investors to hold units of the fund on their balance sheet rather than recognising each underlying asset individually. Spezialfonds that meet certain product requirements benefit from a semi-transparent or fully transparent tax regime under the German Investment Tax Act, meaning income is attributed to and taxed at the investor level, preserving the insurer's tax-exempt status. Investing through a Spezialfonds also helps insurers avoid consolidation at the insurer or group level. 

Spezialfonds are only permitted to invest in a defined list of eligible assets under the Investment Tax Act. Historically, to invest in such funds, units in closed-ended funds structured as limited partnerships needed to qualify as a security (Wertpapier) or fall within a 10% de minimis threshold. Such requirements were difficult to satisfy for many fund structures, particularly for some conservative investors with restrictive internal approaches. The Location Promotion Act (Standortfördergesetz), which entered into force in February 2026, has addressed this by introducing a new provision that directly permits Spezialfonds to invest in units of all alternative investment funds pursuant to AIFMD, including closed-ended funds structured as partnerships or corporations. For sponsors, this simplification should make it easier to access the substantial pool of German institutional capital that is deployed through Spezialfonds.

Helpful documentation for marketing purposes