Bond Voyage

Read this article to understand:

• What determines an insurer’s allocation to a securitised transaction 
• Upcoming UK and EU reforms to improve insurers’ access to securitisation markets and their key differences
• How after the reforms, the same securitisation exposure can look materially different from a global insurers’ view
   

In February 2026, our Charted Territory publication – Capital efficiency reset for insurers – briefly examined the upcoming major changes to European securitisation capital rules expected in 2027. Here, we explore the topic in greater detail.

Securitisation has been underrepresented in many insurer portfolios over the last decade, despite offering characteristics that insurers typically seek, namely investment grade exposure, diversification, access to differentiated pools of collateral and, in many cases, attractive spread premiums relative to similarly rated corporate credit.

Punitive capital requirements are part of the explanation – after the global financial crisis, regulations treated securitisation conservatively because of concerns around complexity, transparency and structural risk.¹

Currently, both the UK and the European Union (EU) are engaged in regulatory overhaul to improve access for insurers to their securitisation markets, but they are adopting quite different approaches.

The reform debate now, is not just about lowering capital charges, but whether the regulatory treatment still reflects the risk of senior, well-structured securitisations. In the future, capital alone is unlikely to be the driver of insurers’ use of securitisation. It will depend on whether reforms can address the constraints behind their portfolio construction: capital efficiency, governance burden, operational confidence and implementation practicality.

Why securitisation is back on the insurer agenda

Insurers continue to face a challenging investment backdrop. Credit spreads remain compressed across many public fixed income markets, competition for high-quality assets is intense and the search for additional return on capital remains a central feature of balance sheet management.

The upcoming regulatory reforms will open up a wider universe of potential investments for insurers, particularly given the favourable capital treatment for securitisations.

Figure 1 shows the expected capital efficiency ratios for various asset classes under the proposals in Europe.

From a purely investment perspective, increasing exposure to securitisation assets can thus be compelling. Yet insurers have historically remained underweight. The question is why.

Capital is only part of the insurer allocation decision

Insurers do not allocate capital simply to the assets offering the highest spread or the lowest capital charge. A securitisation allocation has to pass a broader set of tests before it becomes investable at portfolio level:

• Investment case: spread, rating, structural quality, duration, diversification and liquidity
• Capital case: Solvency Capital Requirement (SCR) impact, return on capital and interaction with liability-driven objectives
• Governance case: due diligence, board and committee comfort, ongoing monitoring and regulatory confidence
• Implementation case: data, systems, reporting, manager oversight and operational readiness

Now, the EU and the UK are proposing to reform insurers’ regulatory capital requirements, in order to revive securitisation markets and make these investments more attractive. But they are approaching it from different angles.

Europe’s diagnosis: capital is the constraint

The European Commission’s reform package is based on a simple premise: the capital treatment of many securitisation exposures no longer reflects their underlying risk.² For insurers, this matters because securitisations have often offered attractive spreads and diversification but struggled to compete with corporate credit on a ‘return on SCR’ basis.

The reforms target that directly, with lower capital charges for STS and non-STS securitisations, separate treatment for senior and non-senior tranches, and targeted relaxation of certain STS eligibility requirements.³ While senior CLOs may be among the most visible beneficiaries, the implications extend across RMBS, ABS and CMBS.

If implemented as expected, senior securitisation exposures will become materially more competitive in insurer portfolios. Figure 2 shows how the upcoming capital treatments benefit senior securitisation exposures.

The key message is not just lower capital charges, but a more differentiated framework that favours senior over non-senior securitisation and provides a clearer distinction between STS and non-STS assets.

Figure 3 shows how capital charges will be more favourable for senior transactions under the new regime.
 

UK’s diagnosis: implementation is the constraint

The UK has taken a noticeably different approach.⁴

The proposals include:

• More principles-based due diligence requirements
• Simplified reporting expectations
• Streamlined transparency obligations
• Greater flexibility for investors in non-UK securitisations

This suggests that UK policymakers have reached a different conclusion. The obstacle to investment may not only be capital; it may be the friction involved in approving, monitoring and holding securitisation exposures within a regulated insurer portfolio.

What this means in practice – US CLO example

The distinction is clearest in the case of US CLOs. These are non-STS securitisations and are unlikely to benefit from STS treatment in the UK. Under the European proposals, however, lower capital charges for senior non-STS securitisation exposures could improve their return on SCR.

While UK reforms do not directly reduce the capital charge on a US CLO, they may make it easier for insurers to get comfortable approving, monitoring and holding the exposure. In practice, this means less checklist-style compliance and more focus on whether the insurer understands the transaction’s structure, collateral, risk retention, cashflows and performance.

This matters most for overseas securitisations. A US CLO may not provide information in exactly the same format as a UK or EU securitisation, but that does not necessarily mean the insurer cannot assess the risk. The practical question becomes whether the insurer can show that the information is sufficient for due diligence, monitoring and reporting obligations.

Conclusion

Securitisation has long faced two challenges within insurer portfolios: capital efficiency and implementation complexity. Lower capital charges may improve the economics, but they do not automatically make securitisation investable.

Europe is attempting to solve the first problem through a more favourable and risk-sensitive capital framework. The UK is attempting to solve the second through simpler, more proportionate implementation requirements.

For insurers, both matter – allocations depend not only on return and capital efficiency, but also on liquidity, governance, operational readiness and regulatory confidence. Both approaches recognise the same reality. Securitisation has the potential to play a larger role in insurer portfolios than it does today, but demand will only grow if the asset class works in practice as well as in theory.

This also matters beyond Europe and the UK. For global insurers, the same securitisation exposure can look materially different depending on the regulatory lens through which it is assessed:

• Europe makes securitisation more attractive
• the UK makes it more accessible

For insurers, the most interesting question is no longer whether securitisation can offer attractive spread or diversification. It is whether regulatory reform can make the asset class sufficiently capital-efficient, governable and operationally practical to move from relative value opportunity to strategic portfolio allocation.