Staff Report
European Union policymakers are considering new solvency requirements for insurers that take part in a fast-growing form of credit protection sold to banks, as regulators try to get ahead of a market that has roughly doubled in size over the past two years.
The products in question, known as unfunded significant risk transfers, let banks offload the default risk on loan portfolios by paying insurers to issue a form of credit guarantee, rather than requiring the insurer to post collateral upfront. According to an expert opinion prepared for the European Commission, insurers writing this unfunded protection should meet additional solvency criteria before regulators extend the most favorable capital treatment to banks using the structures.
The proposal comes as part of a broader push by Brussels to ease access to securitized finance across the bloc, a goal that has put policymakers in the position of simultaneously encouraging growth in risk-transfer markets while trying to ensure insurers taking on bank credit risk remain financially sound enough to pay out if losses materialize.
The market has expanded quickly: the number of unfunded credit protection deals rose to 96 in 2025 from 78 the year before, with insurers covering roughly €4.7 billion of risk-transfer tranches last year, up from €2.7 billion in 2024.
Regulators have grown increasingly attentive to the intersection of banking and insurance risk this year, with Europe's insurance watchdog separately flagging concerns about insurers' exposure to private credit and other bank-adjacent lending as those markets have grown.
Any final guardrails would need to balance the Commission's broader securitization agenda against the risk that under-capitalized insurers could struggle to absorb losses in a downturn, a tension that is likely to shape negotiations over the rules in the coming months.
