Solvency II: Where the Real Change is Happening
In October 2025, the European Commission finalized long-anticipated amendments to Solvency II, with implementation expected by January 2027. While presented as a technical recalibration of capital rules, the reform is more consequential than it may first appear — repricing regulatory capital and reshaping relative value across asset classes. At its core, the reform is designed to remove structural barriers that have limited insurers’ ability to deploy capital into long-term investments, particularly in areas such as securitization and equity, while supporting broader EU priorities around growth and competitiveness.
While the review spans multiple areas, the most immediate and actionable impact is the expected recalibration of capital charges for securitizations. In our view, this change has the potential to fundamentally reshape insurer participation in high-grade ABF, while supporting the broader development of European capital markets and facilitating the flow of capital into the economy.
This aligns closely with a theme we highlighted in The Power of Credit, Europe remains a “heavy demand, light supply” market, where structural demand for duration and structured credit assets is robust, but regulatory costs have historically constrained origination and insurer participation. Solvency II reform begins to address that imbalance.
Securitization: Leaning into Regulatory Efficiency
One of the most significant shifts within the revised framework is the expected recalibration of spread risk charges for securitizations.
Historically, Solvency II imposed comparatively high capital charges on securitized exposures, particularly non-STS (Simple, Transparent and Standardized) transactions, which limited insurer participation and as a result reduced the role of structured credit within standard formula portfolios.
That is now due to change.
The revised framework would improve treatment across both STS and non-STS assets, with the most notable benefits applied to senior non-STS tranches. Importantly the clearer distinction between senior and non-senior exposures means higher quality senior tranches are no longer treated the same as riskier subordinated exposures.
We believe the magnitude of this change is meaningful. As illustrated in exhibit 1, capital charges for investment-grade securitizations with 1–5 year duration would decline depending on tranche and structure. In parallel, exhibit 2 shows how the revised framework could improve the regulatory efficiency of European CLOs and high-grade ABF. Under current rules, an illustrative 3-year non-STS securitized portfolio carries a spread risk SCR approximately 46%. Under the revised framework, that would fall to approximately 22%.
In practical terms, insurers could access wider spreads in senior, high-quality securitization tranches with a capital treatment more proportionate to underlying risk. This would bring ABF, CLOs, and other securitized exposures into play with EUR investment-grade corporates in portfolio construction.
Put simply: high-grade ABF and CLOs would look more attractive on a capital adjusted basis.
EXHIBIT 1: Revised Spread SCR for Securitization Assets
