- Despite modest allocations today, euro high-yield credit can offer insurers a way to potentially enhance income, diversify portfolios and improve resilience beyond traditional fixed-income exposures
- Implementation choices, notably duration of the strategy, funding source of a high-yield position and accounting requirements, are key elements to consider for integrating high yield in a portfolio while managing volatility, Solvency Capital Requirement and IFRS constraints
- The euro high-yield universe also makes it possible to build diversified portfolios while respecting climate commitments of insurers
Across European insurers’ portfolios, allocations to high-yield public corporate credit remain modest, at around just 2%.
This is unsurprising, as insurers naturally prioritise assets that align closely with their liability profiles. As a result, they tend to favour asset classes offering predictable cash flows, low default risk and low capital charges under Solvency II.
High yield, by contrast, is a market largely composed of mid-sized leveraged companies, often in transition, which therefore entails higher credit risk and greater volatility than its investment-grade counterpart.
This universe can also be broadened to include financial companies through senior or subordinated debt. Nevertheless, high yield can offer meaningful benefits to insurance portfolios, including:
- Higher credit spreads and therefore higher coupons with all-in yields supporting income objectives
- Diversification of the investable universe by expanding it beyond investment grade issuers
- Potentially greater resilience than other total return assets such as listed equities
The asset class also remains relatively liquid. When comparing the US’s older and larger market to Europe’s, average durations as of early 2026 are close, at around three years.
In terms of spread levels, both markets generally exhibit similar orders of magnitude (excluding the impact of foreign exchange hedging): around 290 basis points on average over the past year, despite the US market’s average rating being lower (BB/B+) at end of March 2026 than the euro market (BB/BB-).
Given the multifaceted nature of insurance balance sheets, any high-yield allocation needs to be assessed across several dimensions: economic efficiency with regards to a portfolio’s risk measured as volatility and with regards to required regulatory capital; accounting treatments; and sustainability considerations.
This paper reviews them in turn, focusing primarily on a euro strategy.
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