European and UK life and retirement markets are facing familiar pressures: long‑dated guarantees, high annuity demand, and a need for stable investment income in an environment of tightening investment‑grade bond spreads. Banks, meanwhile, continue to manage capital and balance‑sheet constraints, particularly for mortgages, small-and-medium-enterprise lending, and consumer credit.
Securitisations sit at this intersection by turning granular pools of loans into tradeable bonds, channelling funding from long‑term investors to households and businesses. Securitisations will not replace insurers’ core fixed income holdings in sovereigns and corporate bonds. They can, however, help address the low-spread, long-liability challenge, offering diversified credit exposure, structural credit enhancement, and additional spread over equivalent corporate bonds. Whilst insurers also play a wider role as providers of credit protection on securitisation tranches, this article focuses on their role as investors rather than guarantors.
Discussion points include the following:
- Business case: Main securitisation structures and backing assets
- Investment rationale: Spread and diversification
- Capital and matching adjustment: Benefit and eligibility requirements
- Internal models: Banking benchmarks, requirements, and the Prudent Person Principle
- Main risk dimensions: Default, idiosyncratic, systemic, correlation, and structural