Securitisations for Insurers: The Long and Winding Road
Securitisations have been underutilised by insurers outside the US and Bermuda, despite compelling risk-adjusted returns. Evolving global regulations and expansions in securitisation markets may be changing that. Here’s what we think insurers need to know.
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Key takeaways
- Securitisations have offered insurers attractive yield, robust credit protections and diversification benefits relative to corporate credit.
- Regulatory simplification and easements in Europe and Asia are expected to expand insurer access to securitised credit markets globally.
- In particular, Solvency II capital requirement reforms due in 2027 may make senior securitisation tranches more capital efficient for European insurers.
Executive summary
The evolving securitisation market
Securitisations are now being viewed as an increasingly important component of insurers’ investment portfolios as they seek diversification and attractive risk-adjusted returns for their fixed income exposures. Once concentrated primarily in the US, the securitisation market is expanding as regulatory developments and broader participation create opportunities globally. Asset-backed securities (ABS), mortgage-backed securities (MBS) and collateralised loan obligations (CLOs) have the potential to add diversification and capital efficiency.
Regulatory change is expanding access
Historically, insurers in many regions faced significant barriers to adopting securitised assets, including stringent capital requirements and extensive due diligence obligations. In Europe, regulatory regimes such as Solvency II have often made certain securitisation exposures capital intensive. Recent reforms are helping address these constraints by reducing some of the regulatory burden and encouraging broader institutional participation. Similar developments in parts of Asia are also supporting growth of the asset class.
Diversification and yield advantages of securitised assets
Securitised assets have provided several benefits, including strong credit protections, enhanced yield potential relative to similarly rated corporate bonds and improved diversification. Structural features and underlying collateral pools have created opportunities to target different sources of risk and return. The sector spans a wide range of subsectors, allowing investors to tailor exposures across credit quality, duration and economic cycles.
Building more resilient portfolios
A well-constructed securitisation allocation may complement broader fixed income exposures. Core holdings such as agency MBS and senior tranches of CLOs or commercial mortgage-backed securities (CMBS) may provide liquidity and stability whilst supporting asset-liability management objectives. Market characteristics differ by region, making implementation considerations an important part of portfolio construction.
A growing opportunity for insurers
As regulatory frameworks evolve and markets continue to develop, securitisation is becoming a more accessible tool for insurers and other institutional investors. The combination of diversification, potential yield enhancement and flexible portfolio applications is reinforcing the role of securitisation within modern insurance investment portfolios.
Common questions about securitisation
- What is securitisation?
Securitisation involves transforming pools of financial assets into tradable securities, helping insurers diversify risk exposures and access a broader range of investment opportunities.
- Why are securitised assets attracting insurer interest?
They can potentially offer credit protection, competitive yields and diversification benefits compared with traditional corporate bond allocations.
- How do regulations affect investment in securitised assets?
Capital requirements and due diligence rules influence insurer participation, although recent reforms are helping make the asset class more accessible in many regions.
- What types of securitised assets do insurers typically use?
Common allocations include ABS, CMBS, MBS and CLOs, depending on investment objectives and risk considerations.
- How can securitisation support portfolio construction for insurers?
Securitised assets may help improve diversification, support asset-liability matching and broaden sources of return within insurers’ fixed income portfolios.
All investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to
numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics.
This material is provided for informational purposes only and is intended for professional/institutional investor and qualified client use only. Not for retail public use.
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