Insight Solvency II: 2027 Securitisation Reform for EU Insurers

European insurers have historically allocated relatively little to securitised credit, despite the asset class’s strong credit performance since the Global Financial Crisis. Punitive capital treatment has been an important constraint. From 30 January 2027, however, the Solvency II recalibration will materially improve the treatment of selected senior securitisations, giving insurers a timely reason to reassess the asset class.

Why Solvency II is changing for securitisation

Senior securitised assets can provide spread enhancement, diversification, and structural risk mitigants, supported by pools of mortgages, consumer loans, or corporate credit exposures. Yet securitisation represented just 0.33% of total investments among insurers and reinsurers applying the Solvency II standard formula at the end of 2021.¹

Following the Global Financial Crisis, regulatory measures strengthened transparency, risk retention, and investor protection. However, high capital requirements and extensive operational obligations also made many high-quality securitisations uneconomic relative to corporate bonds and other spread assets.

The policy environment is now shifting towards competitiveness, economic growth, and the mobilisation of capital. The Solvency II reform seeks to align regulatory treatment more closely with the underlying risk characteristics of high-quality securitisation while maintaining investor protections.

What changes from 30 January 2027?

The amended Solvency II standard formula introduces targeted reductions in securitization spread-risk capital charges:

• For AAA senior non-STS, the factor per year of spread duration falls from 12.5% to 2.7%, a 78% reduction.
• For AAA senior STS, it declines from 1.0% to 0.7%, a 30% reduction.
• For BB senior non-STS, it falls from 82% to 14.3%, an 83% reduction.

This recalibration is especially relevant to AAA CLOs, which cannot receive STS status and have historically faced stringent capital requirements. Senior RMBS, prime consumer ABS, AAA CLOs and senior CMBS are expected to be among the principal beneficiaries, although the effect will vary by credit quality, seniority and structure.

What could the reform mean for insurer portfolios?

We tested three approaches within a model European insurer credit portfolio:

• Release: Substitute part of the A and BBB corporate allocation with senior STS ABS and RMBS to reduce Spread SCR while broadly preserving income.
• Enhance: Introduce AAA CLOs to increase portfolio spread, with a modest rise in capital consumption.
• Optimise: Combine senior STS ABS/RMBS and AAA CLOs to increase income while keeping overall Spread SCR broadly unchanged.

In the illustrative €10 billion portfolio, the Release scenario reduces Spread SCR by approximately €57 million while maintaining virtually identical spread income. The Enhance scenario adds approximately €5.8 million of annual investment income, while the Optimise scenario adds approximately €5.2 million with total Spread SCR essentially unchanged. These figures are illustrative, use representative mid-2026 spreads and exclude several portfolio-specific considerations.

CLO ETFs vs. segregated mandates

Insurers can access securitised credit through pooled vehicles, including CLO ETFs, or through segregated mandates. The appropriate route will depend on allocation size, governance resources, liquidity requirements and the degree of portfolio customisation required.

• The growth of the CLO ETF market has provided insurers with a scalable and operationally efficient way to establish an allocation, offering diversified exposure and access to the market through a liquid investment vehicle. While securitised credit is sometimes perceived as less liquid than traditional corporate bonds, senior securitised markets have generally remained active during periods of market stress. In the United States, AAA CLOs continued to trade throughout the pandemic-related volatility of 2020. In Europe, senior AAA CLOs also remained actively traded during the 2022 LDI crisis; supported by their floating-rate structure, established investor base and broad dealer participation. However, AAA CLOs should not be treated as a direct cash substitute. In a risk-off environment, prices may fall as spreads widen, even when ultimate credit impairment remains remote. The key distinction is between mark-to-market volatility and permanent loss. Investors should size allocations with this liquidity profile in mind and recognise that execution conditions can deteriorate in stressed markets.
• For larger strategic allocations, segregated mandates provide greater control over portfolio construction, concentration limits, and collateral characteristics, allowing portfolios to be tailored to specific capital, accounting, and risk objectives. STS ABS and RMBS allocations are often more naturally implemented through customised mandates, where insurers can target specific collateral types, jurisdictions, durations, and cash-flow profiles to align more closely with liability and capital management requirements.

Key takeaway: What the Solvency II reform means in practice

The 2027 Solvency II recalibration represents a meaningful shift for European insurers. For the first time in more than a decade, selected senior securitisations can compete on a more level footing with traditional fixed income assets from a regulatory capital perspective.

The result is a broader portfolio construction toolkit that allows insurers to pursue different objectives, whether releasing regulatory capital, enhancing investment income, or improving risk-adjusted returns without materially increasing overall capital consumption.

Learn more about this emerging opportunity 

Explore this topic in more depth, including a case study for adding senior securitised credit to a model insurer portfolio.

FAQ

What is the Solvency II securitisation recalibration?

The Solvency II securitisation recalibration is a set of amendments to the Solvency II framework that reduce spread-risk capital charges for selected securitisation exposures and align capital requirements more closely with the underlying risk characteristics of high-quality securitisations. The reforms improve the treatment of both STS and certain non-STS securitisations, increasing the relative attractiveness of securitised assets for European insurers.

When does the 2027 Solvency II reform take effect?

The revised Solvency II capital treatment for securitisations is scheduled to apply from 30 January 2027.

What is a CLO ETF and how do insurers use them?

A CLO ETF is a pooled investment vehicle that provides diversified exposure to collateralised loan obligations through an exchange-traded fund structure. Insurers can use CLO ETFs as a scalable and operationally efficient way to establish or expand an allocation to securitised credit while benefiting from diversification and daily liquidity.

How are ABS and RMBS treated under the 2027 reform?

Senior STS asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) receive more favourable capital treatment under the recalibrated framework. The reforms move senior STS securitisations closer to the treatment of covered bonds, reflecting their credit quality and structural protections.

What is the difference between STS and non-STS securitisations?

STS stands for Simple, Transparent and Standardised. Under the Solvency II reforms, senior STS securitisations benefit from favourable capital treatment and are treated differently from non-STS securitisations. However, the recalibration also provides meaningful capital relief for senior non-STS securitisations, including AAA CLOs and certain CMBS structures.

How does Solvency UK differ from the EU's Solvency II reform?

The EU's Solvency II reform includes a direct recalibration of securitisation capital charges, reducing spread-risk capital requirements for qualifying securitisation exposures. Solvency UK does not include an equivalent recalibration of securitisation capital charges. Instead, UK reforms focus more heavily on areas such as Matching Adjustment flexibility and broader measures designed to expand insurers' investment capacity. While the approaches differ, both frameworks reflect a broader policy objective of encouraging investment and capital formation.

What should insurers do to prepare for the 2027 changes?

Insurers may wish to reassess how securitised credit fits within their strategic asset allocation, capital management framework, and portfolio-construction process. At the same time, insurers should continue to maintain robust due diligence, collateral analysis, security selection and ongoing monitoring processes, as lower capital charges do not reduce the importance of disciplined credit analysis and risk management.