Following the Global Financial Crisis, the European securitisation market stagnated due to eroded investor confidence and strict regulatory measures. The 2019 European Securitisation Regulation (SECR) introduced the “Simple, Transparent and Standardised” (STS) label and unified guidelines to restore trust and minimise systemic risk. Despite these efforts, issuance remained low, largely because regulations still constrained activity.
A fresh move in 2024 to reduce regulatory barriers and promote greater use of private capital to invigorate European capital markets led to an in-depth review earlier this year to prioritise securitisation reform to stimulate bank lending and diversify financial portfolios.
2025 Proposed Regulatory Changes
The European Commission’s legislative proposals in mid-2025 targeted the SECR, the Capital Requirements Regulation (CRR), the Liquidity Coverage Ratio (LCR), and Solvency II. The goal was to streamline regulation, lower compliance costs and make securitisation more attractive for banks, insurers and issuers.
Insurance Incentives (Solvency II) are particularly notable, as current rules have kept insurers’ securitisation allocations below 1% (except for those utilising an internal capital model). The proposed framework aligns senior STS securitisation capital charges with those of covered bonds, while senior non-STS tranches are aligned with BBB-rated corporates. For instance, if adopted into the new Solvency II framework, capital charges for senior AAA CLOs could drop by 78%, making securitisation investments far more attractive for insurers.
Capital Charge (Up to 5 Yrs Duration)1
| Rating | Current Capital Charge | Proposed Senior Capital Charge | Proposed Non-senior Capital Charge |
|---|---|---|---|
| AAA | 12.5%*spread duration | 2.7%*spread duration | 7.4%*spread duration |
| AA | 13.4%*spread duration | 3.3%*spread duration | 9.0%*spread duration |
| A | 16.6%*spread duration | 4.4%*spread duration | 12.0%*spread duration |
| BBB | 19.7%*spread duration | 7.5%*spread duration | 18.8%*spread duration |
| BB | 82.0%*spread duration | 14.3%*spread duration | 38.9%*spread duration |
| B & below | 100.0%*spread duration | 23.5%*spread duration | 63.8%*spread duration |
| Unrated | 100.0%*spread duration | 100.0%*spread duration | 100.0%*spread duration |
Source: European Insurance and Occupational Pensions Authority (EIOPA).
Market Impacts and Implications
These reforms are expected to unlock major investment from banks and insurers, potentially expanding the asset-based securities (ABS) market in the EU and UK. Fitch reported in March 2025 that nearly 15% of US life insurers’ assets were invested in securitised products, versus 3% for EU life insurers. If the proposed regulatory changes go ahead, we could likely see renewed interest from European investors and a narrowing in the gap between European and US securitised allocations.
For insurers, the reforms could create a much more favorable investment landscape for ABS: reduced capital charges; improved risk-return profiles; and regulatory parity with other fixed income products. This is likely to enhance portfolio diversification and returns, especially for managers with structured finance expertise. The reforms will also offer better access to a diverse range of asset types and risk/return profiles from consumer loans and auto ABS to commercial mortgage-backed securities and CLOs. Importantly, ABS investments do not tend to generate duration mismatches or lead to higher levels of risk.
Conclusion
The proposed EU reforms represent a comprehensive overhaul of the securitisation regulations that, if implemented, would reduce regulatory burdens and lower capital requirements, potentially resulting in a revival of the securitisation market and attractive new opportunities for insurers across Europe.
1Capped at 100% before leverage; Weighted Average Life (WAL) used as proxy for spread duration; spread duration floored at one year.
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