European insurers make their investment decisions based on various, sometimes entity-specific factors. In this paper, we analyze some common factors driving the asset allocation for European insurers, like changing risk-return trade-offs, responsible investing and regulatory developments. We also summarize the main changes in insurers’ asset allocation at an European and regional level.
Key takeaways
- Strong capital positions, limited liquidity concerns and favorable financing conditions create a positive panorama for European insurers. Investors can analyze allocating capital into emerging and innovative opportunities
- Higher interest rates have changed the relative attractiveness of investment opportunities. Insurers now find higher yields in the traditional bond market, even for safe and liquid asset classes like sovereign bonds and investment grade credits. Illiquid investments stay relevant due to diversification potential and excess spread.
- Several changes have been announced in Solvency II. The European Commission aims to enhance risk sensitivity and to release capital so that insurers can invest in securitizations, private markets, and green investments, among others. Implementation of the proposed rules is expected for January 2027.
- Sustainability risks has been announced as a 2026 focus area for EIOPA. This is expected to increase insurers’ focus on the materiality and likelihood of sustainability risks within their business models, including the way they invest their assets.
- In the last five years, there have been significant changes in the asset allocation of European insurers. Some of these developments can be explained by large changes in market value due to the increase of interest rates or because of changes in the relative attractiveness of asset classes.
Strong balance sheets to navigate 2026
Insurance companies started the year with a strong capital position. In addition, favorable financing conditions and limited liquidity concerns,1all in all create a positive panorama to explore investment opportunities. All of this naturally mindful of geopolitical volatility and inflationary pressures, for which risk-aware balance sheet management is highly important.
Figure 1: European Economic Area ratio of eligible own funds to SCR (Solvency ratio) development. Source: EIOPA and Aegon Asset Management, as at 30 September 2025.
Change in interest rates levels
Insurers are liability-driven investors. This makes interest rates and the mitigation of interest rate risk a central element of the investment policy. Moves in interest rates have changed the available investment opportunities. Figure 2 shows that interest rates have risen considerably relative to 2020. Insurers now find higher yields even in safe and liquid asset classes. As opposed to our previous update in 2024, the yield curve has normalized (i.e. it is not inverted anymore). This is a result of monetary policy action by the European Central Bank, bringing the deposit facility rate from a 4% high in 2024 to 2% as at 31 March 2026. During 2026, however, the short end of the curve has witnessed upward pressure.
Sudden and pronounced interest rate hikes can cause liquidity problems. This concern has led to more focus on liquidity and collateral management for interest rate hedge portfolios. High levels of interest rates can also mean more volatility in insurers’ ALM projections, especially when a duration mismatch exists. Such a mismatch can also cause higher capital requirements for interest rate risk under Solvency II.2
Figure 2: Change in Euro swap vs 6M interest rate curve. Source: Bloomberg and Aegon Asset Management, as at 31 March 2026.
We expect that insurers will keep and even increase their allocation to fixed income. Within core fixed income, especially sovereign bonds and corporate credits, insurers can take advantage of the elevated yields whilst matching liabilities. Alternative fixed income strategies, like private debt, infrastructure debt or mortgage loans, provide diversification, additional spread and reduced capital requirements under Solvency II. Lastly, given the high volatility of interest rates in recent years and ongoing global market risks, we expect an increased focus on asset and liability management. This may also lead to more outsourcing of the liability-driven investing (LDI) strategy to specialized asset managers, especially in case of highly-leveraged swap overlays.
During 2024 and 2025, important changes in Solvency II were announced.3 At Aegon AM, we have performed an analysis that focuses on the impact of each one of the main asset management related changes on the insurers’ solvency ratio under the standard formula.
|
Topic |
Change |
Potential impact on solvency ratio |
|
Valuation of liabilities |
New method for extrapolation of discount curve |
Decrease |
|
New calculation of volatility adjustment |
Increase |
|
|
New calculation of risk margin |
Increase |
|
|
Solvency capital requirements |
Interest rate risk – new calculation |
Decrease |
|
Equity SCR- Broadening of symmetric adjustment |
More stable |
|
|
Relaxation of long-term equity requirements |
Increase |
|
|
Revised SCR for securitizations |
Increase |
|
|
Revised SCR for mortgage loans |
Decrease |
|
|
Revised criteria for qualifying guarantees (spread and counterparty SCR) |
Increase |
Broadly speaking, these changes will probably lead to a capital relief for most insurance companies. S&P have estimated a capital relief of about €80 billion.4 We expect that insurers consider this capital relief to invest in riskier assets. Some technical changes will also need thorough analysis, e.g. the new valuation curve of the liabilities and the impact on interest rate sensitivities and hedge ratios.
Due to potentially more punitive interest rate risk solvency capital requirements (SCR), we expect insurers to pay more attention to their asset and liability management and the implementation of LDI strategies (in line with the expectations presented in the previous section).
Insurance companies are also expected to monitor more closely their fixed income portfolios relative to the EIOPA reference portfolios, since the volatility adjustment will become more relevant, offering a larger capacity to enhance the solvency ratio during times of stress.
Responsible Investing
Insurers are one of the most important players when it comes to responsible investing given their very large amount of assets under management, and the impact of ESG risks on their assets and liabilities. On the liability side, we have already seen in recent years that physical risks are increasing rapidly, both in frequency and magnitude. This has had an impact on property & casualty insurers and reinsurers, who find it more difficult to quantify and insure such risk events. Longevity risk — due to changing demographics — also has a big impact on life insurers. The focus of this paper is however on the asset side of the balance sheet. With approximately €9.4 trillion held in assets, insurers are the largest institutional investors in Europe and, by nature, their long-term business model creates the ability to invest sustainably.5
Sustainability risks has been announced as one of the two 2026 areas of focus for EIOPA.6 This is expected to increase insurers’ focus on the materiality and likelihood of sustainability risks within a their business models, including the way they invest their assets. In addition, EIOPA recommended additional capital requirements for fossil fuel assets on European insurers’ balance sheets to accurately reflect the high risks of these assets.7 Such a measure has not been implemented in the Solvency II regulation. However, the previously mentioned capital relief that the Solvency II developments will convey, is also intended to facilitate investments that support the European Green Deal.
In practice, insurers are constantly monitoring and revising their investment beliefs and policies and assessing how to incorporate ESG and responsible investing. Investment decisions can now require products that integrate an ESG screening process, which helps insurers’ risk management by reducing or mitigating exposure to investment products that convey financially material risks. Investors are also increasingly looking for asset classes whose use of proceeds positively address ESG issues. This is a more proactive approach compared to the traditional ‘negative screening’ approach, i.e. the application of exclusion lists, which is still the most common responsible investing style among European institutional investors.8
Whether responsible investing practices are driven by investment beliefs (including ESG themes, financial risks and return), risk management (including financial, legal and reputational risks) and / or what policy holders demand, we expect that European insurers will take into consideration the impacts of ESG trends in their portfolios, increase their allocation to assets and products which incorporate responsible investing, and cause increased demand for products with stringent reporting and compliance features.
Recent changes in asset allocation
The factors described in the previous pages, among others, caused changes in the asset allocation of European insurers. Figure 3 shows the changes in the asset allocation of European insurers between 2020 Q1 and 2025 Q3.
Figure 3: Change in insurers' asset allocation in the European Economic Area. Source: EIOPA and Aegon Asset Management, as at 30 September 2025. Unit linked and index linked assets are excluded.
Some of the main developments we observe are:
- The proportion of sovereign and corporate bonds in the asset allocation of European insurers has decreased significantly in the last five years;
- On the other hand, the share corresponding to equities, UCITS fund investments, and mortgages and loans went up during the same period.
Even though some of these developments can also be explained by large changes in value given the increase of interest rates, and because of forced sales due to liquidity and margin requirements, changes in the relative attractiveness of asset classes, among others may have fueled these asset allocation changes. We now analyze the changes in insurers’ asset allocation in more detail, both from a continental and from a regional point of view. Figure 4 shows this breakdown.
Figure 4: Asset allocation change (2020 Q1 - 2025 Q3). Source: EIOPA and Aegon AM, as at 30 September 2025. Unit linked and index linked assets are excluded.
European Economic Area
We start with the European Economic Area (EEA) since European regulators tend to look at this region to formulate an overarching set of policies.
In both life and non-life sectors, the largest increases are observed in equity (+5% life, +3% non-life) and UCITS funds (+8% life, +3% non-life). On the other hand, major decreases are observed in sovereign (-8% life, -2% non-life) and corporate bonds (-6% life, -4% non-life).
Regarding UCITS funds, the largest increases for life insurers have been in private equity and infrastructure (+3% each). Infrastructure also represented the largest increase for non-life (+2%). Major decreases are observed in debt funds (-8% for life and -5% for non-life).
Benelux area
Relative to the EEA, life insurers from the Benelux region have a significantly larger allocation to mortgages and loans. In the case of non-life, Benelux insurers have a larger allocation to corporate and sovereign bonds.
In the life sector, the largest increases observed in the period are in equity (+4%) and UCITS funds (7%). For the non-life sector, the largest increases are in UCITS funds (+6%). The largest decrease was in sovereign bonds, for both life (-13%) and non-life (-7%).
Regarding UCITS funds, for the life sector there were reductions in the allocations mainly to money markets (-12%) and equity (-4%) funds. There was an increase to funds classified as “other”9(+7% life), infrastructure (+5% life) and real estate (4% non-life).
Spain and Italy
Yields from sovereign and corporate bonds in Spain and Italy have historically been higher, relative to most regions in this analysis. That, among other reasons, contributes to a larger allocation to sovereign and corporate bonds in this region compared to the EEA, which as at the third quarter of 2025, amounted to 81% of the total asset allocation for life insurers and close to 63% for non-life.
During the last 5 years, life insurers in this region decreased their allocation to sovereign bonds (-3%) to invest more in diversified UCITS funds (+2%), including infrastructure, alternative, and private equity funds. In the same period, non-life insurers allocated more resources to corporate bonds (+8%) and equity (+3%), while their allocations to UCITS reduced (-8%).
Germany and Austria
The asset allocation in Germany and Austria is rather similar to that in the broader EEA, with a larger allocation to UCITS funds for both life and non-life, from which around 50% corresponds to debt funds.
Life and non-life insurers had a similar development in their asset allocation from 2020 to Q3 2025, reducing their exposure to sovereign and corporate bonds (close to -11%), moving to equity and diverse UCITS funds.
Nordics region
Insurers in the Nordics region also do not differ much from the broader EEA. Nordic insurers present a larger allocation to UCITS funds (mainly equity and debt funds) relative to the EEA. Non-life insurers also overweight in money market funds.
During the last 5 years, life and non-life insurers in the Nordics region allocated 13% and 7% (respectively) more to UCITS funds, decreasing their exposure to sovereign (-6%) and corporate (-5%) bonds in the case of life insurers, and equity (-3%), corporate bonds (-2%) and property (-2%) for the non-life sector.
Regarding the increase in allocation to UCITS funds, life insurers moved to private equity and infrastructure funds, reducing mainly their exposure to debt funds. On the other hand, non-life insurers reduced their allocation to private equity funds, to allocate to equity, money markets and “other” funds.
Conclusions
During the last five-year period, European insurers have witnessed a shift in the financial markets which has had an impact on their balance sheet and the investment decision making process. Given the pronounced rise in interest rates, insurers have learned lessons regarding liquidity and collateral management, but they have also reassessed investment opportunities.
A similar risk-opportunity assessment is now taking place around other key trends for European insurers, such as the developments on the Solvency II review and responsible investing. We expect that such developments will also have an impact during future strategic asset allocation reviews.
Although it is important to look at the major trends and developments at an aggregated industry level, it is also highly relevant to identify and assess the regional and entity specific context, risks and opportunities.
Sources
1S&P Global Ratings “European Insurance Outlook 2026” S&P Global Ratings
2Mercer, 2024. Available at: https://www.mercer.com/insights/investments/market-outlook-and-trends/higher-interest-rates-for-european-insurers/.
3For more details please visit: Additional Solvency II changes and impact for insurance companies
4S&P Global Ratings (2025). Available at: Viewpoint: The 2026 Forecast for European Insurers Is Partly Cloudy
5Insurance Europe, 2024. Available at: https://www.insuranceeurope.eu/priorities/19/long-term-investment-sustainable-finance.
6EIOPA, 2025.Available at: https://www.eiopa.europa.eu/publications/union-wide-strategic-supervisory-priorities-focus-areas-2026_en
7EIOPA, 2024. Available at: https://www.eiopa.europa.eu/eiopa-recommends-dedicated-prudential-treatment-insurers-fossil-fuel-assets-cushion-against-2024-11-07_en
8CFA Institute, 2024. Available at: https://rpc.cfainstitute.org/-/media/documents/article/industry-research/responsible-investment-funds.pdf.
9 “Other” are those funds that do not fall under one of the main categories as per EIOPA UCITS classification (i.e., equity, debt, money markets, asset allocation, real estate, alternative investments, private equity and infrastructure).
Authors
