Private Markets Community

From January 2027, the Solvency II reforms will reduce capital charges for EU insurers investing in AAA CLO tranches.

Much of the discussion has understandably focused on the regulatory change itself, but I think the more interesting question is what follows.

If insurers become a more meaningful investor base for European CLOs, success is unlikely to depend solely on portfolio performance. Managers will also need the reporting capabilities, operational infrastructure and governance expected by insurance investors.

I recently explored this topic in a white paper looking at:

• The implications of the Solvency II reforms for the European CLO market
• Why operational readiness may become a competitive differentiator
• What CLO managers should be considering before the reforms take effect in January 2027

I would be interested to hear how others in the community see insurance participation evolving over the next few years. Do you expect this to materially broaden the European CLO investor base, or do operational and regulatory hurdles remain too significant?

I have attached the paper for anyone interested. 

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Vinit Sheth
Senior Consultant
Alpha Alternatives
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Thanks Stephan, I'm glad you like the paper.

Short answer: yes, there is a clear read-across, but the mechanism and timeline would likely differ between CLOs, Rated Note Feeders, and CFOs, since the Solvency II capital charge reform applies to all securitisation exposures held by EU insurers under the Standard Formula, so any tranched structure that falls within the scope of the EU Securitisation Regulation would benefit from the revised spread risk calibration.

That said, the practical impact would likely varies quite a lot depending on the structure.

CLOs are the most direct and immediate beneficiary, as we covered in the paper. AAA CLO tranches get the largest absolute reduction in capital charges, and the product is already well understood by institutional investors. 

Rated Note Feeders are where it gets more complicated I think. The Solvency II reform lowers the spread risk charge for the rated notes themselves, which is helpful. However from what we see developing an RNF product that works well for Solvency II-regulated insurers, as opposed to NAIC-regulated US insurers, is a work in progress. Roughly 70% of rated note transactions today are targeted at US investors, and a key driver is that the US regulatory infrastructure, particularly the NAIC framework, is simply more accommodating of these structures. The Solvency II reform narrows that gap but is still not equivalent to NAIC regulations (one example is Solvency II still requires public ratings from registered CRAs, not private letter ratings, unlike US NAIC framework where private ratings are accepted.)

CFOs are a slightly different again. The cash flows are often event-driven rather than scheduled, which creates a challenge for European insurers who need predictable cash flows for Matching Adjustment eligibility. There is active structuring work underway, particularly in the UK under Solvency UK where the Matching Adjustment rules have been broadened to accept 'highly predictable' rather than strictly fixed cash flows. We do see several managers developing MA-eligible CFO structures with longer maturities of 20 years or more to create the kind of predictable repayment profile UK life insurers need. The EU has not made an equivalent change to its Matching Adjustment framework, so the opportunity is more advanced in the UK than in the EU for now. The US market remains substantially deeper for CFOs. European investor base for CFO notes is still thin relative to US.

Happy to discuss further if useful.

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Vinit Sheth
Senior Consultant
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Original Message:
Sent: 11-07-2026 08:31
From: Stephan Richtering
Subject: Could Solvency II reshape the European CLO investor base?

Interesting development and enjoyed the paper, thanks for sharing.

Are you seeing any read-across to Rated Note Feeders and Collateralised Fund Obligations from the Solvency II changes, or do you think the impact stays fairly contained to CLOs? Currently most of the buyers of RNF and CFO notes today are US insurance firms.