EU weighs stricter rules for insurers in unfunded SRT deals to curb systemic risk

European Union officials are considering tighter rules for insurers involved in unfunded significant risk transfers (SRTs) as part of a broader package to ease access to securitised finance. According to a note seen by Bloomberg, insurers would need to meet extra solvency standards if policymakers approve more lenient capital treatment for these products. The European Commission cited the 2008 AIG bailout as a cautionary example of the risks of unsecured credit protection.

The proposal would require insurers to maintain certain solvency ratios over three years, involve at least two protection providers per deal, and include provisions for replacing downgraded insurers. Supervisors would also assess banks’ and insurers’ concentration risks in SRTs. The European Insurance and Occupational Pensions Authority and the European Systemic Risk Board would be tasked with monitoring systemic exposures.

Unfunded SRTs leave banks reliant on insurers’ ability to pay claims, raising legal and liquidity risks. The capital treatment for banks depends on whether these protections are deemed ‘resilient’, affecting the risk floor applied. Insurers are expanding in this market, expecting to increase participation by 50% this year, according to an industry survey.

Banks such as Unicredit, BNP Paribas, and BBVA have recently completed unfunded SRT deals, while Credit Agricole is considering new transactions. The outcome of the EU’s deliberations will shape future market access and regulatory obligations for both banks and insurers.