Banks nearly double risk offloaded to insurers

Financial Times UK

28 Aug 2026

LEE HARRIS

Banks nearly doubled the risk they offloaded to insurers through a booming securitisation trade last year, as the lenders sought to free up more capital for lending.

Last year, insurers signed up to cover the risk of default on €4.7bn in synthetic risk

transfers, up from €2.7bn in 2024, according to the International Association of

Credit Portfolio Managers.

Insurers remain a fraction of the 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.

The property and casualty insurers offering these arrangements typically also cover

corporate policyholders against risks ranging from hurricanes to cyber attacks. As a

result, regulators have allowed them to take on exposure to largely uncorrelated

risks, such as bank defaults, relatively cheaply.

Munich Re, The Fidelis Partnership, and AIG-backed insurer Convex are among

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 HHussain, 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 said Fitch had raised concerns over banks’ exposure to risks in the event

insurers or other counterparties stopped providing SRT coverage. “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,”.