Liabilities: Growth and stability return

• Life insurance: Following a period of subdued activity (and significant lapses in some markets) tied to the rapid rise in interest rates, 2025 saw a marked resurgence in life insurance. Term products offered by banks during the rate hiking cycle are progressively reaching maturity, while life insurers have responded with more attractive yields to boost demand. New business volumes have picked up meaningfully, reflecting improved product competitiveness.
• Non-life insurance: Inflation has stabilised across most European markets, enabling non life insurers to reprice, restore profitability, and strengthen balance sheets. The improved pricing environment has supported underwriting results.

Fixed Income: Focus on government bonds and diversification

• Government bonds: Most new fixed income allocations have been directed toward European sovereigns, which currently offer attractive yields and carry a zero capital charge under Solvency II. Insurers have particularly favoured longer maturities to extend portfolio duration and achieve better matching with long term liabilities. Portfolios that were roughly a 50/50 split between government and credit are now closer to 60% government — marking a notable shift away from investment grade credit toward sovereign exposure.
• Securitized assets: The Solvency II review is expected to take effect in January 2027. A key change is the reduction in spread risk SCR for securitized exposures, prompting many insurers to revisit this space — especially CLOs. While the US CLO market offers greater depth, opportunities should be assessed carefully to ensure investments are eligible and compliant under the EU Securitisation Regulation.
• Diversification: Appetite for diversification has increased, with greater interest in hard currency emerging market debt (often accessed via managed SPIRE notes) and renewed interest in high yield bonds.
  
  EMD funds hedged via rolling FX forwards have experienced mark to market volatility due to the depreciating dollar. With potential for continued USD uncertainty in the year ahead, many investors are looking to transform their EMD exposure into SPIRE notes to hedge currency risk through to maturity.
  
  We’ve created a family of “typical” SPIRE notes to illustrate available returns across insurance asset classes. The table below highlights current yields in several US fixed income segments — US IG corporates, US munis, and hard‑currency EMD — by target duration. These proof‑of‑concept portfolios reflect typical insurer guidelines and restrictions.

Private Credit: Growing allocations and broader opportunity set

• Alternatives now represent nearly 25% of life insurance portfolios (around 20% for non life), with private credit the largest slice — spanning mortgages and loans, as well as private corporate debt.

• Private credit exposure has risen to approximately 7–10% of the general account for many European insurers, built steadily over time with a strong focus on eurozone markets and senior direct lending.
• As spreads have compressed, insurers are seeking new sources of return by diversifying geographically and moving lower in the capital structure. Interest is growing in distressed credit, mezzanine debt, asset backed finance, and private CLO structures.

Real Assets: Infrastructure leads, Real Estate faces headwinds

• Infrastructure remains a cornerstone diversifier, generating consistent, stable income and continuing to attract strong flows. Transportation and timberland also garner interest for their diversification benefits.
• The chart below illustrates the impact of reallocating a typical European insurance portfolio. The intersection of the X and Y axes represents the current average allocation; each dot along an asset‑class line represents a 1% incremental reallocation. A 5% reallocation to infrastructure, for example, is expected to reduce portfolio volatility by ~7 bps and increase expected annual return by ~12 bps. Assets in the top‑left quadrant decrease volatility and increase return — thus improving diversification. This is the case across real assets (timberland, infrastructure, transportation/leasing).

• Real Estate: Valuation markdowns in real estate continue to put a strain on insurance balance sheets. While the current environment offers attractive entry points for opportunistic real estate investments, many insurers remain cautious — particularly those who experienced losses during the sector’s slowdown — and are hesitant to commit to new funds.

Equity: Rebuilding exposure and regulatory focus

• Over 2025, insurers showed renewed appetite for equities, with particular focus on eurozone markets and selective allocations to emerging markets for diversification.
• Interest in the Solvency II review is strong and widespread, especially around the long term equity investment package. Insurers are actively exploring application of the new framework to both private equity and public equity fund exposures to optimise capital treatment and enhance long term returns.

The chart below shows return on capital across alternative assets — both with and without long‑term equity treatment. While private credit dominates the return‑on‑capital profile without long‑term equity, assets such as public and private equity, as well as transportation, become more attractive when long‑term equity is applied.

Conclusion

The European insurance sector is demonstrating resilience and adaptability as it navigates a changing investment landscape. Insurers are taking advantage of improved market conditions to strengthen their portfolios, diversify risk, and position themselves for long-term success. We will continue to monitor these trends and share further insights in future editions of Inside Insurance.