The European securitization reform aims to strengthen the investment capacity of insurance companies. Cat bonds are instruments that are particularly popular at the moment. But along with the benefits, they also come with risks.
Interest in securitisations
At the beginning of 2024, Eiopa (the European Insurance and Pension Market Authority) underlined how the insurance sector’s interest in investments in securitizations remained low, despite efforts to facilitate them through preferential treatment for “simple, transparent and standardized” (Sts) ones according to the dictates of the Solvency II directive. According to an analysis conducted in 2022 by the Joint Committee (JC) of the European Supervisory Authorities, most insurers cited misaligned risk-return profiles and asset and liability management preferences as reasons for limited interest in securitisations.
The Committee’s analysis, carried out on the basis of the responses of 98 European insurance and reinsurance companies, the contributions of stakeholders and an open consultation, aimed to evaluate the impact on the insurance sector of the introduction of simple, transparent and standardized senior securitisations (Sts), which took place in 2019.
The JC, which supports the aim of reviving securitization markets for EU insurers, had not recommended changes to the current Solvency II framework on the prudential treatment of securitisation. However, the Commission recently published a proposal on securitisations, with the clear intention of revitalizing them at a time when the credit market is particularly lively.
In line with the same intention, the Commission delegated regulation of 29 October 2025 arrived: in force after its publication in the Official Journal, it modifies the delegated regulation (EU) 2015/35, which is part of the solvency regulation for insurance companies, regarding technical provisions, long-term guarantee measures, own funds, equity risk, spread risk on securitization positions, other capital requirements according to standard formula, reporting and disclosure, proportionality and group solvency. The general objective is a reduction in the risk margin across the EU, to strengthen the investment capacity of insurance companies.
European convergence in supervision
On this matter, it is certainly essential to achieve greater cohesion in supervision to prevent regulatory fragmentation and ensure homogeneous practice between the various member states. In the immediate future, it could be achieved through better coordination within the Joint Committee of Supervisory Authorities, while in the long term vision, the ESA (European Supervisory Authorities) suggest considering the implementation of more consolidated European supervisory structures, especially for operations that cross European borders.
In June 2025, we therefore proceeded with a review of the regulations relating to securitization for banks and institutional investors with particular attention to capital requirements and due diligence obligations, in memory of past systemic crises.
The proposed changes to the Solvency II Delegated Regulation (which contains detailed rules for the calculation of capital requirements, risk management and transparency for insurance and reinsurance companies in the European Union), published in July 2025, include reduced capital requirements in the standard formula for all securitisations. The aim is to correct regulatory inconsistencies and reduce unnecessary prudential costs.
Transfer reduced liabilities to paper
The major challenge regarding securitisations in the insurance sector concerns the position of the insurer as the issuing entity for the transfer of risk. One form is the securitization of liabilities, in which the transfer of insurance risk is to global capital markets
Similarly to the phenomenon of securitization traditional in the banking sector, where assets or credits that generate incoming cash flows are essentially sold, is making its way there securitization of liabilities, less common but growing, typically through the transfer of insurance risks to global capital markets. The securitization of liabilities is more complex than the traditional securitization of assets/credits as it requires finding investors willing to assume future payment obligations.
If we focus on the broadcasting companies, the Ils family (Insurance Linked Securities) has heterogeneous characteristics and comes in rather complex technical forms. However, the highest market share is the prerogative of cat-bonds (catastrophe bond) because, on the one hand, they respond to a more mature market and because, on the other, they are characterized by a higher demand, as well as being better modelable from a technical-actuarial point of view. Completing their strong attraction for investors is their low correlation with the dynamics of traditional financial markets.
Why they like cat bonds
The macroeconomic consequences linked to climate change and the performance of the cat-bond markets, in addition to the perception of a protection gap on catastrophe risks, have pushed insurers around the world to seek alternative and innovative forms of risk protection and related costs, in an attempt to redistribute them over the global economic capital system rather than over large reinsurers, stabilizing the related financial flows.
The macroeconomic data regarding the trend of global losses resulting from “climate change” present an average double-digit growth rate, equal to approximately 10.5 percent per year over the last five years and the 2024 figure is approximately 320 billion dollars (source Climate Catastrophy Report AON, Swiss-Re-Munich-Re). The statistical projection also seems to confirm the World Economic Forum’s numbers regarding the estimate of expected economic losses by 2050 which can be placed in a range between 1.7 and 3.1 trillion dollars.
At the same time, the cat-bond market has also recorded double-digit growth over the last ten years: around 11-10 per cent, with an outstanding figure of over 50 billion dollars at the end of 2025. Figure 1 highlights the effervescence of a market which certainly responds to the specific dynamics of a growing demand (aimed at filling theInsurance Gap), which in turn is the result of the greater frequency of catastrophe events detected annually in the world.
Figure 1
The Italian market also turned towards these non-traditional forms of risk transfer, albeit more tepidly, at the beginning of the last decade and gradually more frequently over the last few years. There are essentially two operators: Assicurazioni Generali and Unipol.
A new aspect that characterizes the most recent cat-bond issues is the attempt by companies to combine the management of insurance risk with sustainability objectives, ultimately incentivising resilience and climate adaptation practices through both the underlying assets (environmental protection projects, for example) and the issuer selection criteria, favoring those with a “sustainable” profile.
One of the “tactical” advantages of cat bonds is certainly the anti-cyclical nature of risk coverage. The capital market is in fact a large and diversified source of financial resources and insurance companies are able to find here a valid alternative tool to traditional reinsurance, especially when in the event of major catastrophes the underwriting capacity is significantly reduced and at the same time cover prices rise. Not only that. Even for investors (both institutional and non-institutional) the investment in cat-bonds is advantageous, not only for a competitive return (low probability and high severity of adverse events) and low credit risk, but also because it is disconnected from the trends of traditional financial markets, because it is conditioned only to a minimal extent by its most typical risk factors, including recessions, rate volatility and inflation.
However, we cannot ignore the main risks to which disaster securities expose those who purchase them: the loss of capital or interest if the designated catastrophic event occurs, the risk of issuer insolvency, the risk of poor liquidity and the need for in-depth technical analysis linked to complex risk models. Even on a supervisory level, it will be necessary to provide strategies to mitigate these risks if we want to strengthen market confidence in this sector.
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