Banks nearly doubled the risk they offloaded to insurers through a booming securitisation trade last year, as lenders sought to free up more capital for lending. In 2025, insurers signed up to cover the risk of default on €4.7bn in synthetic risk transfers, up from €2.7bn in 2024, according to new survey data from the International Association of Credit Portfolio Managers. Insurers remain a fraction of the booming market for European banks’ credit risk, which last year shifted risks worth €579bn in SRTs to investors including hedge funds and private credit funds, according to Barclays analysts. Banks use the structures to offload the default risk on a pool of loans to outside investors in exchange for a fee. Those investors are then usually on the hook for losses up to an agreed cap, and the banks secure more favourable capital treatment from regulators, which means they can then lend more. But insurers have the advantage that they can cover these risks on an “unfunded” basis, meaning that, unlike hedge funds, they are not required to set aside money to cover losses. Whereas hedge funds and other investors typically deposit collateral in an account for the duration of an SRT deal, insurers can rely on their credit ratings and existing balance sheets to manage these risks.

Munich Re, The Fidelis Partnership, and AIG-backed insurer Convex are among the speciality groups offering SRT coverage. Between 2019 and 2025 banks shifted €10.9bn of credit risk to insurers through SRTs, said the IACPM, mostly corresponding to mezzanine debt from loan pools. SRTs have come in for scrutiny from some regulators and analysts due to their similarity to credit default swaps, which brought large insurers such as AIG to the brink of collapse during the global financial crisis of 2008.

“Credit default swaps are unfunded credit protection,” said Monsur Hussain, head of markets research at Fitch Ratings. “It’s essentially the same technology” as SRTs, he said, but added that “AIG were doing it at a volume that is not being witnessed for European insurers”. Hussain added that Fitch had raised concerns over banks’ exposure to risks in the event that insurers or other counterparties stopped providing SRT coverage. “The concern is, if there’s an expectation with the bank that they can roll these agreements, but suddenly the counterparties — hedge funds, insurance companies — say they are unable to provide that protection any longer,” he said. “If for whatever reason the participants in the market are unable to provide or roll over the protection, the banks might be forced to deleverage, because suddenly the capital requirements go up.”