Solvency II Reform 2027: CLO Capital Charges Explained

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

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.

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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?

Gain access to our analysis of the Solvency II Reform and its implications for capital efficiency, CLO investments and insurance portfolio construction.

Numeric data in this FAQ is derived from: UBS Asset Management, ‘Solvency II Reform: A new era for CLO investments’, April 2026.

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When does the Solvency II reform take effect?

How do capital charges change for AAA senior non-STS CLOs?

What else matters beyond lower capital charges?

Who is the Solvency II reform relevant for?

Does the Solvency II reform affect non-EU insurers?

Which CLO tranches benefit most from the Solvency II reform?

What is the difference between STS and non-STS securitizations?

What should insurers do to prepare for the Solvency II reform?

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.

References:

¹ Commission Delegated Regulation (EU) 2026/269 of 29 October 2025 amending Delegated Regulation (EU) 2015/35 as regards technical provisions, long-term guarantee measures, own funds, equity risk, spread risk on securitisation positions, other standard formula capital requirements, reporting and disclosure, proportionality and group solvency. OJ L, 2026/269, 18 February 2026. Application from 30 January 2027.

² WAL of 6.3 years derived from the target 17% capital charge: 17% / 2.7% ≈ 6.3 years. This is consistent with typical AAA CLO tranche characteristics.