Insurers are aiming for a bigger slice of the market for significant risk transfers this year as banks step up their use of the hedging instruments.
Firms expect to participate in about 50% more SRTs than in 2025, according to a survey of 14 global insurers and reinsurers by the International Association of Credit Portfolio Managers. They predict that growth will be strongest in transactions linked to corporate loans and asset-based finance, followed by deals tied to residential mortgages, the survey found.
Banks use SRTs to insure loans against default, typically obtaining protection for between 5% and 15% of the portfolio value. The instrument also allows lenders to boost their solvency ratios or free up capital.
Most transactions are funded, with investors putting up cash as collateral to cover potential losses in return for a coupon. Insurers tend to participate in unfunded SRTs, by issuing a type of credit guarantee. The Bank of England is concerned that this type of deal may leave banks exposed to greater risk at times of stress because it relies on insurers being able to honor their guarantees.
The IACPM survey found that the number of unfunded credit protections increased to 96 in 2025, from 78 the previous year. Insurers protected approximately €4.7 billion ($5.5 billion) of SRT tranches last year, compared with €2.7 billion in 2024.
At the end of 2025, insurers had provided protection on €10.9 billion of outstanding SRT tranches executed since 2019, linked to risk on €366 billion in loans.
Deals tied to lending to large corporates and small and medium-sized enterprises represented 58% of new business last year, followed by residential mortgages, which accounted for 20% of newly-protected portfolios.
Lending in the European Union accounts for 63% of the reference portfolios hedged via unfunded credit protections, followed by the US with 17% and other European nations, including the UK, with 12%, according to the survey.
Banks that recently marketed or completed unfunded credit protections include BNP Paribas SA, Mitsubishi UFJ Financial Group Inc. and Austria’s Erste Group Bank AG, which turned to insurers for an SRT to free up capital for its acquisition of Santander Bank Polska. Lenders including Banco Santander SA and UniCredit SpA regularly place some of their SRTs with insurance firms.
Munich Re AG, AXA SA, AXIS Capital Holdings Ltd and Liberty Mutual are among insurance firms investing in unfunded SRTs. Such transactions are directly agreed with banks or via arrangers and insurance brokers including Howden Group or Marsh & McLennan Co.
Top Photo: Skyscrapers and office buildings in the Square Mile financial district of the City of London. Photographer: Jason aAlden/Bloomberg
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