European ABS: a generational allocation shift?
May 05, 2026
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6 min
Sébastien André
Portfolio Manager, Euro ABS
Loomis, Sayles & Company
Institutional investors have been largely locked out of the asset-backed securities (ABS) markets for nearly two decades.
Allocations to ABS have been stymied by a high regulatory capital charge on the assets and reams of red tape which together have made the asset class unattractive to institutional investors.
The obstacles have frustrated those institutional investors aware of the capacity of ABS to protect value and deliver returns in excess of similarly rated corporate bonds.
But the ABS landscape is about to change. Recognising the need to revive competitiveness across the EU, the European Commission has proposed measures to channel household savings into productive investments, with ABS at the top of the list.
Insurers should feel the benefits of the Commission’s move in early 2027, allowing them to participate in a market expected to double in size by the end of this decade.
Securitisation has stuttered since the GFC
The European securitisation market has struggled to regain its poise ever since the global financial crisis (GFC) triggered a collapse in issuance.
Issuance before the GFC was a healthy €300bn-€500bn a year, but since the GFC issuance has been bumping along at €150bn a year on average. This is partly due to reduced investor trust and partly due to the post-GFC regulatory response, which deliberately choked the market.
As long ago as 2019, efforts were made to restore securitisation’s reputation. The European Securitisation Regulation (SECR) introduced the Simple, Transparent and Standardised (STS) label to promote high-quality securitisations, particularly in prime ABS and residential mortgage-backed securities (RMBS). The STS label aimed to inspire investor confidence while offering lighter regulatory and prudential treatment.
But the reforms did not go far enough and issuance remained subdued.
Why the Commission is supporting growth in ABS
Restoration efforts have only ramped up meaningfully in the last couple of years after the European Commission identified securitisation as a key mechanism to channel household savings into productive investments. The Commission’s aim was to promote investments which support growth in the real economy.
Currently banks provide 70% of total financing in Europe, compared with just 30% in the US. This is holding back economic development in the EU.
“It is important to reverse this metric so that only 30% of European financing is made by banks and 70% is made privately,” says Sébastien André, a portfolio manager on the Mortgage and Structured Finance Team at Loomis, Sayles & Company, an affiliate of Natixis Investment Managers. “To do this requires a deepening of financial markets and, in particular, markets in securitised assets.”
Under the ensuing Savings and Investments Union (SIU), implemented in 2025, securitisation reform was made the first legislative priority, aiming to leverage the potential of the ABS market to free up bank lending capacity, redistribute credit risk to capital markets and diversify investor portfolios.
Why investors should care: the case for ABS
Securitisation, to be clear, allows banks to pool baskets of loans, usually secured against property, autos or SMEs. This basket is then rated and listed, transforming illiquid assets into a security which is tradeable and has significant liquidity.
So, why should European insurers and other European institutions take notice of the proposed reforms and a potential resurgence of the ABS market? In a nutshell, high-quality European ABS can help to stabilise and inflation-proof a portfolio.
The recent past shows how they stabilise portfolios. In the first week of March 2020, for instance, when Covid panicked markets, senior European bonds prices fell by around 5% and high-yield bonds declined by 10%. Prices of European ABS were barely changed.
Similarly, during the UK’s liability-driven crisis of September 2022, both investment grade and high-yield bonds sold off by 15%. But European senior ABS held firm in comparison. Finally, senior European ABS were relatively less impacted by the Trump tariffs of April 2025.
In terms of inflation-proofing too, ABS have beneficial characteristics. Sébastien says: “ABS are floating-rate products, so they have zero sensibility to interest rates… The decorrelation to interest rates is particularly relevant to investors at a time of inflationary geopolitics.”
Potential returns are compelling too. European ABS offer a substantial structural spread pickup compared with similarly rated bonds. For instance, AAA corporate bonds currently (in early 2026) offer 22 bps above the interbank rate, but AAA ABS offer spreads of some 61 bps.
Ultimately, European ABS can reduce portfolio volatility thanks to its amortising structure and its duration profile of two to three years, compared with four to five years for corporate bonds.
An easing of the rules is in sight
To foster greater securitisation, the Commission proposes to ease the EU Securitization Framework which governs product rules (STS), transparency and due diligence, amend the Capital Requirements Regulation and revise the Liquidity Coverage Ratio framework. A complementary proposal will relax capital requirements for insurers under Solvency II.
These initiatives are designed to reduce operational and regulatory hurdles for banks, insurers and issuers, aligning securitisation more closely with the corporate bond market.
Currently, investors face a burdensome process before purchasing a securitisation, requiring extensive documentation and compliance checks. Under the new framework, due diligence will reflect the risk profile of the investment and be more principles-based. And investors will no longer need to verify most information, as long as the counterparty is based and supervised in the EU.
Issuer reporting will also be eased. The current templates are costly and complex, with many mandatory fields. The proposal aims to reduce these fields by at least 35%.
“In our view, the proposals are credible and address the main obstacles such as excessive operational and compliance costs, and an overly conservative policy for low-risk assets,” says Sébastien. “The proposals will encourage broader issuer participation and market liquidity.”
Potential for a generational shift in insurers’ allocations
A key focus of the proposal is the revision of the Solvency Capital Requirement (SCR), which is a central component of Solvency II and defines the amount of capital EU insurance and reinsurance companies must hold. The draft regulation introduces lower capital charges for both senior STS and non-STS securitisations.
“These changes will materially enhance the risk-return profile of senior securitisations, making them more competitive compared with other fixed income instruments,” says Sébastien.
Specifically, STS senior securitisations will be aligned with covered bonds and the treatment of non-STS senior securitisations will align with BBB-rated corporate debt.
Currently, the combined EU and UK ABS market stands at €570 billion, representing just 2% of the European economy. By contrast, the US securitisation market accounts for over 10% of GDP. Morgan Stanley projects that, with full implementation, the European and UK markets could grow to as much as €1.2 trillion by 2030.
The impact on insurers’ portfolios could be transformative. Currently, European life insurers allocate less than 1% of their assets to securitisations – far below the 17% held by US life insurers. The opportunity for European institutions to add to their allocations is clear.
Timelines are tight
For insurers, the opportunity is imminent. The Solvency II amendment comes into force on 30 January 2027.
For the wider reforms, the ECB signalled its support, the EU Council adopted its final position in December 2025 and the European Parliament (ECON committee) is due to consider the reforms by the end of second quarter 2026. Once adopted, a political agreement is expected late 2026/early 2027 after trilogue negotiations between the parliament, the council and the commission. After that, the European Banking Authority and the European supervisory authorities will publish technical standards and guidelines by mid-2026.
The new rules are expected to enter into force at the beginning of 2027 alongside the Solvency II amendments.
“While the timelines are not totally clear, there is strong political momentum behind the reforms and we anticipate a sizeable asset allocation shift in 2027 and beyond,” says Sébastien.
Ready to roll
The European ABS market, then, seems to be primed for relaunch. “This will be a massive shift, the biggest we have seen in years,” says Sébastien.
The changes will reduce friction for both issuers and investors, providing strong incentives for greater distribution and investor participation.
Sébastien adds: “The proposals are focused on driving the key elements of any market: more participants, deeper liquidity, better pricing and the potential for innovative structures.”
Written in April 2026
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