European securitization has spent a decade blaming Solvency II for the absence of insurance companies from its investor base. Soon the market will need a new excuse.
In October 2025, the European Commission adopted a delegated act that cuts the spread risk charge on a senior tranche that does not qualify for the simple, transparent and standardised (STS) label by about four fifths.
From January 30 2027, a triple-A CLO note that cost an insurer half its value in capital until recently will cost about a tenth.
The market is already getting ready for the change. Asset managers are building funds of triple-A CLO and ABS paper to sell to insurers. Even if this attracts a modest shift of money, for example out of single-A and triple-B corporate bonds, it would tighten triple-A CLO spreads.
But the lower risk charge applies only to the standard formula, the fixed capital requirements written into EU law. Most large insurance companies use their own approved internal models, so the change does not directly affect them.
Those groups have always been free to set their own charges on securitization — yet few have invested in size.
So regulatory relief is going to reach the wrong end of the market. The long-dated money securitization issuers covet sits with large annuity writers, in matching adjustment portfolios. Here, insurers earn a capital benefit for holding assets whose cash flows match their liabilities.
Those portfolios hold corporate bonds, infrastructure debt and government bonds. They do not hold CLOs with reinvestment periods, or residential mortgage-backed securities that amortise whenever borrowers choose to prepay.
The UK shows the alternative. Since 2016, UK annuity writers have restructured equity release mortgages into notes that meet the matching adjustment rules, and they are now the main funders of that market.
Brussels policymakers may feel they have spent enormous time and political effort through the reform of Solvency II to please the securitization market.
Unfortunately, it is likely to shrug.
Lighter capital charges for EU insurers using the standard formula are welcome, but will not move the needle much.
If the EU really wants the deep investor base Mario Draghi's report on European competitiveness called for, it needs to start a new fight — to reform the matching adjustment.