Solvency II reform reduces capital charges for senior securitizations from 30 January 2027, improving capital efficiency for insurers and influencing fixed income allocation decisions.1
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What changes in Solvency II in 2027?
Solvency II reform changes how capital charges are calculated under the standard formula. It introduces seniority-based calibration and revises spread-risk factors, aligning capital requirements more closely with tranche risk. The update applies to EU/EEA insurers from 30 January 2027.1
What are the advantages of the Solvency II reform?
Solvency II reform reduces capital charges and improves capital efficiency for insurers. Lower spread-risk factors decrease capital requirements for senior exposures. At ~6.3-year WAL, AAA non-STS CLO charges fall from 78.7% to 17.0%.2 Reduced capital intensity increases allocation flexibility and supports more efficient portfolio construction.
Solvency II key takeaways
Lower capital charges
Under the updated framework, certain AAA-rated CLO exposures may attract capital charges of around 17%, significantly lower than under the previous rules.
More comparable treatment
The revised calibration brings certain senior CLO exposures closer to other fixed income assets under the Solvency II framework.
Potential portfolio benefits
Lower capital requirements may improve capital efficiency and increase flexibility for insurers assessing diversified income allocations.
For the full analysis and calculations, complete the below form to access the white paper.
AAA CLOs in focus: expert insights from Martin Wiethüchter
In this three-part video series, Martin Wiethüchter, Co-Head of UBS Asset Management’s Fixed Income Investment Specialists team, shares his perspective on AAA-rated Collateralized Loan Obligations (CLOs). He explains how the asset class is structured, why it is attracting renewed attention from institutional investors, and how regulatory changes and ETF innovation may shape future demand.
Understanding AAA CLOs
Understanding AAA CLOs
An introduction to what AAA CLOs are, how they differ from CDOs, and why their structure matters for investors. Martin explains the role of senior secured loans, floating-rate coupons, the waterfall mechanism and the historically resilient performance of AAA tranches.
The video highlights why AAA CLOs may offer an alternative to traditional investment-grade bonds, with potentially higher spreads, lower interest-rate sensitivity and portfolio diversification benefits, while also requiring a clear understanding of product complexity and liquidity considerations.
AAA CLOs: Solvency II and liquidity
AAA CLOs: Solvency II and liquidity
A closer look at how the Solvency II framework is evolving for AAA CLOs and what lower capital charges from 2027 could mean for institutional investors. Martin outlines how the recalibration aims to better reflect economic risk and tranche seniority.
He also addresses liquidity in the European AAA CLO market, including the role of the secondary market, the experience during periods of stress, and how daily ETF liquidity interacts with the liquidity profile of the underlying tranches.
The future of AAA CLO investing
The future of AAA CLO investing
An overview of how active ETFs are broadening access to AAA CLOs by combining professional security selection with daily tradability and intraday pricing. Martin explains how the ETF wrapper can open an institutional asset class to a wider investor base.
The discussion also considers the outlook for AAA CLO investing, including expected market growth, increased interest from insurers following Solvency II changes, and the potential for European adoption to follow the development seen in the US CLO ETF market.
Solvency II Reform White Paper
Our white paper, Solvency II Reform: A new era for CLO investments, breaks down the updated capital charges. It includes a side-by-side capital comparison (CLO tranches vs corporates at consistent WAL/duration) and practical implications for portfolio construction.
In this white paper, you’ll discover:
- What changes in Solvency II from January 2027, and how does seniority drive non-STS capital charges?
- How do senior non-STS CLO tranches compare with corporates, STS securitizations and covered bonds on a like-for-like WAL/duration basis?
- How can insurers translate the reform into portfolio decisions, balancing capital efficiency, yield and floating-rate ALM considerations?
Access the white paper
Gain access to our analysis of the Solvency II Reform and its implications for capital efficiency, CLO investments and insurance portfolio construction.
Frequently asked questions
Numeric data in this FAQ is derived from: UBS Asset Management, ‘Solvency II Reform: A new era for CLO investments’, April 2026.
Risks
Risks
Capital outcomes under Solvency II may vary with regulation, modelling and market conditions. CLO investments involve market, liquidity and credit risks, and lower capital charges do not replace robust due diligence and governance.
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