Driven by steadily declining yields and increasingly strict capital requirements, Dutch, Belgian, French, and German insurers have in recent years largely divested from government bonds. The freed-up capital has mainly been invested in corporate bonds and private debt.
Only Belgian insurers will still have a significant share of government bonds on their balance sheets in 2025: 59 percent. Five years ago, that figure was 70 percent. In absolute terms, this represents a reduction from 149 billion to 101 billion euro — nearly one third. In the Netherlands, insurers’ investments in government bonds fell by 50 percent in five years, from 43 to just over 21 billion euro. In France and Germany, the declines amounted to 33 percent, collectively representing hundreds of billions of euro.
The figures come from the quarterly reports that insurers must submit to the European supervisor Eiopa, under the Solvency II regulatory framework. Wim Nagler, head of insurers EMEA at Schroders, analyzed for Investment Officer how major insurers in the Netherlands, Belgium, France, and Germany have responded in recent years to changing market conditions and capital requirements.
Invested assets of European insurers, in billions of euro
A special case
As investors, insurers are a category of their own, since they cannot freely weigh risk against return. Nagler explained: “Solvency II specifies, for each asset class, how much capital must be held in reserve. Those capital requirements put heavy pressure on returns.” For example, while private equity seems well suited to long-term investors such as insurers, 49 percent must be held aside for it. Equity investments require 40 percent in “dead capital.” Returns on such asset classes therefore need to be at least twice as high as those on government bonds to be attractive.
Asset allocation of European insurers, end of Q1 2025
Still, recent years have seen a shift from government bonds toward other asset types, including equities. However, corporate bonds and private debt—and to a lesser extent real estate—have benefited the most, Nagler noted. “The years of minimal or even negative interest rates forced insurers to look for alternatives. But they maintained a preference for fixed income, which still accounts for 80 to 90 percent of their balance sheets. Direct lending has grown strongly, as have corporate bonds, including high yield. And Belgian and French insurers discovered the Dutch mortgage market.” Dutch insurers, by contrast, have scaled back their holdings in that category, partly due to competition from pension funds that have been expanding aggressively into residential loans.
Infrastructure funds
Alongside direct lending, other forms of private debt have also become more popular, particularly infrastructure funds. In France, such investments have doubled in five years to more than 25 billion euro. Dutch insurers barely showed interest five years ago but now hold more than 2.3 billion euro in this segment. It is a category Schroders has actively promoted since 2012, especially in the sub-investment-grade segment. “The capital requirements for that segment are favorable,” said Nagler. “And we expect the regime to become even more lenient. The revision of Solvency II, which will take effect in 2027, is not yet finalized. There is still much discussion about the details, and the capital rules for infrastructure investments are a key part of that debate.”
“Belgian and French insurers discovered the Dutch mortgage market”
The European Union’s desire to further stimulate the European economy is one of the driving factors, as is the previously agreed Green Deal. “Infrastructure projects related to climate change, energy transition, and the circular economy should also be made more investable for insurers,” Nagler argued.
Schroders receives 425 million euro infrastructure mandate from APG
In September of this year, APG granted Schroders Capital a 425 million euro mandate to invest in loans for infrastructure projects focused on themes such as climate change, circular economy, energy transition, waste management, and workplace safety. This is a new strategy by Schroders, supported by APG as a cornerstone investor. According to Schroders, the strategy targets high-yield infrastructure, diversified across European mid-market sectors. For APG, this marks the first step in its impact portfolio toward infrastructure lending, referred to by the asset manager as “real asset credit.”
Additionally, insurers would like to see securitizations made easier. This involves both expanding the ability of banks to transfer risks from their balance sheets to investors and adjusting the capital requirements once such investments appear on insurers’ balance sheets. Nagler explained: “Currently, a high-yield loan might require 20 percent in capital reserves, while a securitization of such loans with a AAA rating could require 36 percent.”
“Insurers may play a different role in the financial system—they are meant to provide stability—but that’s no reason to eliminate every possible risk from investment policy”
Such requirements reduce the returns insurers can achieve on their investments. In the Netherlands, life insurers are protesting this situation, arguing it makes them less competitive compared to pension funds, which can invest up to 50 percent of their portfolios in equities. Nagler concluded: “Insurers may have a different function in the financial system—they are meant to provide security—but that’s no reason to eliminate every possible risk from their investment strategies. After all, that would also eliminate any potential return.”