Will the capital reset bring insurers back to securitisation? EIOPA is sceptical.

WHITE PAPER · INSURANCE INVESTMENT Solvency II’s securitisation reset Capital efficiency, observed spreads and the case for insurer allocations Richard Sarsfield · 6 October 2026

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 2 © 2026 Apex Insurance & Pension Solutions 01 The allocation case In its September 2026 assessment, EIOPA argued that lower capital charges alone were unlikely to drive a significant increase in insurers' securitisation investment.1 The 2027 reform substantially improves the capital economics of qualifying senior notes issued by collateralised loan obligations (CLOs). The revised factors apply from 30 January 2027 to EU insurers using the standard formula.2 WHAT CHANGES IN 2027 Senior CLOs. Qualifying AAA senior non-STS notes receive the largest reduction: at an assumed 5-year duration, their spread-risk stress falls from 62.5% to 13.5%. Senior STS. Simple, transparent and standardised (STS) asset-backed securities (ABS) receive incremental relief from an already favourable capital position. Initial buyers. Additional allocations are likely during 2027, led by standard-formula insurers with existing securitised-credit capabilities or specialist manager relationships. Room to add allocations At the end of 2021, only 12% of European standard-formula insurers and reinsurers held securitisations. In April 2023, EIOPA reported holdings stable at c.€12.5bn, or just 0.33% of total investments. That small allocation leaves substantial room to add exposure.3,4 The 2019 concession rewarded qualifying STS transactions. The 2027 revision extends substantial capital relief to rated senior non-STS notes, including managed CLOs. Preferential STS treatment spans qualifying mortgage, consumer, SME, lease and other receivable notes.2,5 In this paper we consider the revised capital treatment and RoC, as well as the investment universe and portfolio applications. IN THIS PAPER The capital reset 3 Observed spreads and gross RoC 4 An investible European market 6 Portfolio applications and the 2027 response 7

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 3 © 2026 Apex Insurance & Pension Solutions 02 The capital reset At an assumed 5-year regulatory modified duration, the revised senior non-STS scale brings AAA CLOs close to BBB corporate bonds: 13.5% versus 12.5% standalone spread-risk stress. Under the current scale, the same AAA securitisation attracts 62.5%. The reform changes the capital economics of senior CLO investing much more sharply than those of senior STS ABS.2,6 TABLE 1 AAA annual spread-risk stress factors Regulatory category Current From 30 Jan 2027 Senior non-STS securitisation 12.5% 2.7% Non-senior non-STS securitisation 12.5% 7.4% Senior STS securitisation, preferential scale 1.0% 0.7% Qualifying covered bond 0.7% 0.7% Corporate bond 0.9% 0.9% Source: EU Delegated Regulations 2015/35 and 2026/269. Factors multiply regulatory modified duration, subject to category conditions, floors and caps. Covered and corporate factors shown for the first 5 years. AAA senior STS ABS and qualifying AAA covered bonds will attract the same 0.7% annual factor: a 3.5% standalone spread-risk stress at 5 years. Within non-STS, Table 1 shows a 7.4% non-senior factor against 2.7% for senior notes. Junior spread premiums therefore face almost 3 times the capital denominator. EXHIBIT 1 Duration and the standalone spread-risk stress 0 2 4 6 8 10 12 Modified duration (years) 0% 20% 40% 60% 80% 100% Stress, % of market value 1-year floor 62.5% 13.5% Cap: 100% from 8 years (12.5% × 8) (a) AAA non-STS: current and 2027 senior Current rated non-STS scale 2027 rules, AAA senior non-STS 0 5 10 15 20 Modified duration (years) 0% 10% 20% 30% 40% 50% 60% Stress, % of market value +2.5% a year +1.5% a year +1.0% a year +1.0% a year 20.0% (b) 2027 senior AAA non-STS vs BBB corporate 2027 rules, AAA senior non-STS BBB corporate bond (unchanged) Source: EU Delegated Regulations; Apex calculations. The 5-year points illustrate the principal comparison. BBB corporate factors reduce in successive duration bands.

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 4 © 2026 Apex Insurance & Pension Solutions GROSS SPREAD RETURN ON CAPITAL (ROC) Annual market spread divided by standalone spread-risk stress. 130bp = 1.30%. 1.30% ÷ 13.5% = 9.6%. Gross of expected losses, fees, hedging and other investment costs. 03 Observed spreads and gross RoC The lower senior non-STS charge gives standard-formula insurers a stronger case for adding CLOs alongside corporate bonds. The observed AAA CLO portfolio produces illustrated gross spread RoC of c.10%, compared with c.6-9% for the corporate observations. The senior STS examples produce higher gross ratios under both current and revised treatment. Their spread premiums over the covered-bond sample combine with a low capital factor; the reform adds further capital efficiency. TABLE 2 Observed spreads and gross spread RoC: revised treatment Asset / illustration Spread (bp) Annual factor 5-year stress Gross RoC AAA covered bonds Mean of 5 AAA primary issues 17 Primary spread over mid-swaps 0.7% 3.5% 4.9% AA corporate bonds 48 5-year yield less euro swap rate 1.1% 5.5% 8.7% A corporate bonds 53 5-year yield less euro swap rate 1.4% 7.0% 7.6% BBB corporate bonds 76 5-year yield less euro swap rate 2.5% 12.5% 6.1% AAA senior STS mortgage ABS Candide 2026-2 Class A; €750m 45 Primary margin over 3-month Euribor 0.7% 3.5% 12.9% AAA senior STS auto ABS AUTO1 auto ABS Class A; €183.3m 68 Primary margin over 1-month Euribor 0.7% 3.5% 19.4% AAA senior non-STS CLOs Observed AAA note portfolio 130 Discount margin over Euribor 2.7% 13.5% 9.6% Sources: Various market sources; Apex calculations. Market observations use different spread conventions and dates; capital stresses use a common 5-year duration assumption. Corporate: 26 August; covered: 19-25 August; CLO: 28 August 2026. ABS: separate July and September primary examples, applying preferential senior treatment at their expected AAA ratings.7,8,9,10 TABLE 3 Senior and non-senior auto ABS notes in the same transaction Position / expected rating Spread (bp) 5-year stress Gross RoC Senior Class A / AAA 68 3.5% 19.4% Non-senior Class B / AA 100 13.0% 7.7% Sources: Various market sources; Apex calculations. FinanceHero 3 is AUTO1's July 2026 auto-ABS issue. Primary margins over 1-month Euribor; revised preferential STS factors and the same assumed duration. Both rating and seniority differ.2,10 Class B's higher spread faces a substantially larger capital denominator. The resulting lower gross ratio illustrates the capital advantage of the senior allocation within this transaction.

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 5 © 2026 Apex Insurance & Pension Solutions 03 CONTINUED Two distinct investment cases Applying the revised senior non-STS factors to the observed AAA CLO portfolio raises its illustrated gross RoC from c.2% to c.10%, at unchanged spread income. Senior STS receives additional relief from an already favourable starting point. EXHIBIT 2 Gross spread RoC at the same observed spreads 0% 5% 10% 15% 20% Annual spread / standalone spread-risk stress AAA senior STS auto ABS AAA senior STS mortgage ABS AAA senior non-STS CLOs AA corporates A corporates BBB corporates AAA covered bonds 19.4% 12.9% 9.6% 8.7% 7.6% 6.1% 4.9% 2027 securitisation treatment Current treatment 13.6% 9.0% 2.1% Sources: Various market sources; EU Delegated Regulations; Apex calculations. Common assumed 5-year regulatory duration. Solid bars show revised treatment; red outlines show current securitisation treatment. ABS bars represent senior Class A notes in the two transactions, applying expected AAA ratings. Corporate and covered treatment is unchanged. CLOs warrant a fresh allocation review The current 62.5% stress keeps the observed CLO portfolio's gross RoC below the corporate observations; the revised 13.5% stress brings it above them. Insurers that previously screened out CLOs on capital grounds have a clear reason to reopen the allocation discussion. Calls and refinancing affect how long CLO spread exposure remains outstanding. A longer duration raises the regulatory stress and reduces gross RoC, making extension risk part of assessing the revised allocation economics. Incremental relief for senior STS The senior STS stress falls by 1.5 percentage points, from 5.0% to 3.5%. That 30% capital reduction raises the illustrated gross ratios by c.43%, at unchanged spread income. The improvement strengthens an existing capital-efficient allocation case. The Joint Committee's 2022 report found only marginal growth in senior STS holdings after 2019. In its survey of 98 standard-formula insurers and reinsurers, 92% said the STS introduction had no major impact on investment decisions.3 EIOPA identifies liability matching, liquidity and complexity as impediments to wider participation. Prepayments can shorten liability cover; specialist transaction assessment and reporting add to implementation costs. The STS capital reduction improves the gross comparison, while wider adoption also requires portfolios and manager mandates suited to those cash flows and costs.1,4

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 6 © 2026 Apex Insurance & Pension Solutions 04 An investible European market AFME reports €47.8bn of placed European securitisation issuance in Q2 2026, including €19.4bn classified as STS. Placed supply included €14.9bn of CLO/CDO notes, €14.1bn of residential mortgage securities and €10.3bn of auto ABS. These broad European figures include UK issuance and several ratings and regulatory categories.11 Essential conditions for the allocation Investor requirements The insurer verifies required retention, credit-granting standards and information availability before purchase, assesses the exposures and structure, and monitors them throughout the holding. Retention is normally at least 5% of net economic interest, held by an eligible originator, sponsor or original lender.5 Eligible ratings The rated non-STS scale requires at least 2 credit assessments from nominated ECAIs; STS requires at least 1. Eligible ratings are published or available by subscription. Private ratings produced exclusively for an individual client are excluded.5,6 Regulatory seniority A senior position has first claim on the whole underlying exposure pool, with the regulatory allowances for fees, derivatives and pari passu senior notes. The transaction's payment priorities and loss allocation establish that status.5 Preferential STS treatment The transaction also meets the applicable Article 243 credit- quality and concentration conditions. Traditional STS requires an EU-established originator, sponsor and SSPE, a true sale and homogeneous exposures. Its restriction on discretionary active portfolio management places typical managed CLOs in the non-STS category.5 REQUIRED RETENTION AND INVESTOR BREACHES Meeting required retention is a purchase condition. Article 257 requires immediate supervisory notification when the investor becomes aware of specified breaches. A breach resulting from investor negligence or omission increases the spread-risk factor by at least 250% of its original level: at least 3.5 times the original charge. Repeated breaches attract progressively higher treatment.12 US notes can extend the universe Selected US transactions incorporate the arrangements required by EU investors. Ellington's public November 2024 non-QM mortgage issue, for example, included AAA-rated senior notes and US/EU retention. Such structures can widen collateral and manager choice.13

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 7 © 2026 Apex Insurance & Pension Solutions 05 Portfolio applications and the 2027 response Senior securitisations can broaden income in portfolios concentrated in sovereign and corporate bonds. CLOs add senior exposure to corporate loans; STS mortgage and consumer ABS add household credit. The revised capital economics justify considering both within an insurer's credit allocation. PORTFOLIO APPLICATIONS Where the allocation can serve a purpose Portfolio Investment application Shorter liabilities Amortising ABS can align principal receipts with expected claims. Floating coupons limit base- rate exposure; spread and extension risks inform allocation size. Surplus assets Senior CLOs can add loan-credit income with limited interest-rate duration, alongside existing corporate and high-grade credit holdings. Long fixed liabilities A liability-duration overlay can support holding floating securitised credit within a long-liability portfolio. The combined exposure supplies credit income and fixed-rate sensitivity, while principal timing and extension remain part of the asset-liability assessment. Apex assessment, informed by EIOPA's cash-flow observations and public manager research.14,15 SPPI AND ACCOUNTING CLAS SIFICATION Amortised cost or fair value through other comprehensive income (FVOCI) treatment requires cash flows that are solely payments of principal and interest (SPPI) and the relevant business model. For a securitisation tranche, the assessment covers its terms, the underlying pool and whether its credit-risk exposure is no greater than the pool's. Collateral limits and reinvestment terms can support accounting-compatible mandates.16 APEX IPS · SPPI LENS SPPI screening for securitised investments Discuss your organisation's IFRS 9 assessment process. Explore SPPI Lens → A selective increase during 2027 Additional allocations are likely during 2027, led by standard-formula insurers with established securitised- credit teams or specialist manager relationships. Senior non-STS CLOs receive the largest improvement, becoming competitive with corporate bonds on the illustrated gross RoC comparison. Senior STS ABS receives incremental relief to an already favourable capital position. Higher non-senior stresses continue to favour senior allocations, as the auto ABS comparison shows. Managers can support demand through note selection, insurer reporting and accounting-compatible mandates.

APEX IPS · WHITE PAPER Solvency II’s securitisation reset 8 © 2026 Apex Insurance & Pension Solutions Sources 1. EIOPA, Reviving securitisation requires more than lower capital charges, 16 September 2026. 2. Delegated Regulation (EU) 2026/269, Article 1(56) and Article 2: revised Article 178 and application from 30 January 2027. 3. Joint Committee, Advice on the securitisation prudential framework: insurance, December 2022, pp5,9-10: standard-formula participation, senior STS holdings and the 98-firm survey. 4. EIOPA, Investment of insurers and reinsurers in securitisations, April 2023: holdings and investment impediments. 5. Securitisation Regulation 2017/2402, Articles 5-7,18,20; CRR 575/2013, Articles 242(6),243; CRA Regulation 1060/2009, Articles 2,4; homogeneity RTS 2019/1851, amended by 2024/584, Article 1: collateral asset types. 6. Delegated Regulation 2015/35, Articles 4,6,84,176,178,180; ECAI mapping 2016/1800. EIOPA Q&A 2333 and Q&A 977: regulatory spread duration and optionality. 7. LBBW, Capital Markets Compass, September 2026, p99: rating-specific 5-year non-financial yields and euro swap rate, 26 August. 8. The Covered Bond Report, benchmark database: Jyske Realkredit, Raiffeisen-Landesbank Steiermark, Commerzbank, Lansforsakringar Hypotek and ING-DiBa; AAA launch ratings and primary mid-swap spreads, 19-25 August 2026. 9. Fair Oaks, AAA CLO portfolio factsheet, August 2026, pp1-3: 28 August AAA holdings, 130bp discount margin, 4.2-year spread duration; modelled expected maturity. 10. Candide 2026-2, Class A: 8 September prospectus, 45bp margin; completed PCS STS/CRR assessment, 10 September. FinanceHero 3, Classes A/B: 68bp/100bp margins; SVI transaction documents: final prospectus, 13 July; completed STS/CRR assessments, 15 July. Final prospectuses: Candide Class A €750m; FinanceHero Class A €183.3m and total notes €250m. Ratings are expected AAA/AA as applicable. 11. AFME, Securitisation Data Report Q2 2026, 1 October 2026, pp4-5,15-18: placed European issuance; totals include UK issuance and STS notifications. 12. Delegated Regulation 2015/35, Article 257: retention, notification and additional capital for specified investor breaches. 13. Ellington Financial, public issuer announcement, 15 November 2024: AAA senior non-QM RMBS and US/EU retention. 14. Barings, Ready, Steady, CLO, April 2026, pp7-9: floating credit, liability-duration overlays and extension. 15. Loomis Sayles, Solvency II Reform, 18 September 2026, pp3-5,7: structural protection and portfolio applications. 16. EU-endorsed IFRS 9, paragraphs 4.1.2-4.1.5, B4.1.20-B4.1.26,7.1.12; Regulation 2025/1047: classification amendments effective 1 January 2026. Method, assumptions and data limitations Gross spread RoC is annual spread divided by standalone spread-risk stress, using a common assumed 5-year regulatory modified duration. It measures spread income against one capital component. Net RoC also reflects expected losses, fees and investment and hedging costs; total SCR incorporates the other risk modules and portfolio effects. Corporate spreads are 5-year yields less matched euro swap rates; covered spreads are primary mid-swap spreads; ABS spreads are contractual Euribor margins; the CLO portfolio spread is modelled discount margin over Euribor. Dates, benchmarks and market conventions vary. The covered- bond sample equally weights 5 AAA EU mortgage covered bonds with approximately 5-year maturities, priced in August. The CLO observation uses manager-reported AAA note holdings; calculations assume senior notes with 2 eligible ECAI assessments. Fund-level capital follows the applicable look-through rules. The 2 ABS transactions have completed STS/Article 243 assessments. Their Class A notes have senior payment priorities; FinanceHero Class B is subordinated. Issuance documents state expected ratings; calculations illustrate those outcomes under preferential STS treatment. Applied classification requires final eligible ratings. The illustrations use a common duration; instrument-level modelling establishes actual regulatory modified duration, reflecting spread-sensitive cash flows and optionality. The paper covers EU standard-formula treatment.

ABOUT THE AUTHOR Richard Sarsfield Richard spent around ten years managing assets for Lloyd's insurers and around ten years as International Head of Insurance Solutions at Morgan Stanley Investment Management. He supports insurers and asset managers with investment strategy, capital and accounting considerations, and insurance investment propositions. Please be in touch to discuss the implications for your investment portfolio or insurance investment proposition. richardsarsfield@apexips.com www.apexips.com linkedin.com/in/richardsarsfield Important information. For professional investors and insurance practitioners, for information and discussion. This paper presents the author's analysis using the cited sources and stated assumptions. Illustrative figures are scenario calculations. Investment decisions require the investor's own assessment and appropriate legal, accounting, regulatory and supervisory input. This paper provides no security recommendation or legal, tax, accounting or regulatory opinion. Apex IPS supports insurers and asset managers and does not provide regulated investment services or arrange investments. Third-party data remain the property of their owners. Copyright. © 2026 Apex Insurance & Pension Solutions. All rights reserved. This paper may be shared in full and unchanged, with attribution. Brief extracts from Apex's original content may be quoted with attribution. Other reproduction or adaptation requires prior written permission, except where permitted by law. Third-party material remains subject to its ownership and licence terms. Permissions: richardsarsfield@apexips.com. Image and font credits. Geometric facade: 家祺 汤, Pexels, used under the Pexels licence. Bodoni Moda and Manrope: SIL Open Font License. © 2026 Apex Insurance & Pension Solutions 9