The European Commission is weighing a proposal to reduce the capital insurers must hold against investments in asset-backed securities, as part of an effort to revitalise the €1.2 trillion (US$1.4 trillion) securitisation market across the European Union.
According to a document under review with a panel of experts, the capital requirement reduction could reach up to 40% in certain cases. The extent of the cut would vary based on the credit rating of the securities and whether the transactions comply with the Simple, Transparent and Standardised (STS) securitisation framework.
The Commission is expected to announce a broader overhaul of the bloc’s securitisation market later this month, following extended consultations with industry representatives and other stakeholders. Currently, Europe sees about €200 billion of debt packaged into securities annually, significantly lower than the approximately €2 trillion generated each year in the United States.
Asset managers, including Apollo Global Management Inc., which owns the insurer Athene, had called for a recalibration of capital charges in a consultation conducted last year.
For securitisations compliant with the STS framework, the proposed reductions would range from 10% to 30%, depending on the credit rating, the document indicated. Non-STS securitisations, often privately placed, would see capital requirements for senior tranches reduced to between 60% and 83% of current levels.
The document also pointed out that the existing treatment of non-STS securitisations is conservative and does not reflect risk levels accurately, as the capital requirements do not differentiate between senior and non-senior tranches. Additionally, despite the lower capital charges available for senior STS-compliant securitisations, there has been limited demand from insurers for these assets.
Industry leaders have previously advocated for regulatory reform in this space. Allianz CEO Oliver Bäte has urged European regulators to revisit capital rules to facilitate greater insurer participation in areas such as infrastructure and sustainable finance.
According to Bäte, existing regulations limit the ability of insurers to allocate capital toward long-term investments critical for economic growth and climate objectives.
Regulatory constraints have long been identified as a factor impeding growth in Europe’s securitisation market, which bundles assets such as mortgages, car loans, and credit card debt into tradable financial instruments.
Commission officials met with a group of experts on banking, payments, and insurance regulation on Wednesday to discuss matters related to bank supervision, according to the group’s website.
The regulatory changes under discussion also align with broader initiatives under the European Commission’s Capital Markets Union strategy. Aimed at deepening integration across the EU's fragmented financial markets, the strategy seeks to mobilise savings more effectively.
Part of this effort includes proposals to adjust tax incentives and review capital requirements for banks and insurers, alongside steps toward more centralised market supervision to support cross-border investment flows.
If implemented, the proposed changes would align capital charges for senior STS tranches more closely with those applied to corporate or covered bonds.
The proposed reforms come amid a backdrop where Europe’s securitisation market has seen significant contraction over the past decade. While the market stood at around €2 trillion at its peak in 2008, it has since declined to approximately €1.2 trillion.
In contrast, the US securitisation market expanded from US$11.3 trillion in 2008 to US$13.7 trillion by the end of 2023, underscoring the gap in growth trajectories between the two regions.
European life insurers currently allocate just 0.33% of their investment portfolios to securitisations, compared with about 17% among their US peers, Apollo noted in a submission to the Commission, disclosed earlier this year.
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