EU expert opinion proposes extra solvency tests for insurers that back bank risk transfers

Insurers that sell unfunded credit protection on bank loan portfolios could face new conditions in the EU, Bloomberg reported on 19 October, citing an expert opinion prepared for the European Commission. The conditions would apply if policymakers give these significant risk transfers (SRTs) the most lenient bank-capital treatment. A Commission representative declined to comment.

Under the proposal, insurers would have to meet extra solvency criteria and to have kept their solvency ratios above set levels during the previous three years. At least two protection providers would take part in each transaction, and deals would include provisions to replace an insurer whose credit rating falls below a minimum threshold. The transactions would also have to meet the credit quality and disclosure criteria for "resilient" SRTs, which decide whether a 5% or a 7% risk floor applies.

Supervision would also widen. Banking supervisors would assess lenders' concentration risk from SRTs, and EIOPA and the European Systemic Risk Board would be mandated to assess concentration at insurers and possible effects on the EU financial system. The officials' note recalls AIG, which "ran into serious difficulties" in the 2008 crisis after it sold large amounts of credit protection.

Insurer appetite is growing. In an August survey by the International Association of Credit Portfolio Managers, 14 global insurers and reinsurers said they expect to take part in about 50% more SRTs in 2026 than in 2025, Bloomberg reported. The proposals are due for discussion at a key meeting later this week, as the EU works to finalise its securitisation package.