Securitizations for insurance companies: From regulatory relief to portfolio optimization

Key takeaways

  • The revised Solvency II framework improves the regulatory case for investment grade securitizations, but capital relief alone is unlikely to drive allocations. The added value of securitizations extends beyond this, due to the combination of diversification, additional spread and an enhanced risk-return profile.

  • Asset-Backed Securities (ABS) and Collateralized Loan Obligations (CLOs) enhance portfolio diversification by adding exposure to diverse sectors of the economy, such as consumers, mortgages, loans to small and medium enterprises, and loans to companies with relatively large debt (leveraged loans).

  • From a Solvency II perspective, certain securitization strategies can also improve the expected solvency ratio.

  • The asset class is relevant for different types of insurers:
    • For non-life insurers, securitizations are attractive because their floating-rate profile can reduce interest-rate mismatches while also adding liquid spread and further diversification to the portfolio.
    • For life insurers, securitizations can be a valuable addition to the portfolio offering diversification and additional liquid spread with relatively limited interest-rate sensitivity.
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