EU Lawmakers Move to Restore Capital Relief for Credit Insurance
A group of European Parliament members has introduced an amendment that would cut the loss given default (LGD) applied to credit insurance exposures from 45% to 22.5% — a change that, if enacted, would substantially restore the capital efficiency banks receive when using credit insurance as a credit risk mitigation tool.
The amendment targets one of the most consequential side effects of the EU’s implementation of the final Basel III reforms, which took effect in January 2025. Under those rules, large banks using the internal ratings-based (IRB) approach lost the ability to set their own LGDs for insurance exposures. The mandated floor of 45% replaced internal estimates that often sat between 20% and 30%, roughly halving the capital benefit of substituting borrower credit risk with the typically stronger credit risk of an insurer.
Pre-2025 LGD (internal models): 20–30% | Current mandated LGD floor: 45% | Proposed amendment: 22.5%
Industry data indicates the impact was immediate: bank-purchased credit insurance volumes went flat in 2025 after several years of steady growth. Banks in parts of Asia Pacific have faced a similar dynamic.
The Amendment
The five MEPs behind the proposal — members of the Brothers of Italy party within the European Conservatives and Reformists grouping — have advanced it as part of the EU’s broader securitisation framework overhaul, a legislative package framed around improving the bloc’s economic competitiveness. The International Credit Insurance & Surety Association (ICISA) has voiced support, describing the amendment as a straightforward way to keep credit insurance functioning as a viable tool within the banking framework.
“In a time when European businesses are struggling with an uncertain trade environment and the need to innovate and grow, the EU must maximise all proven financing tools available to it.” — Daniel de Búrca, Head of Policy and Regulatory Affairs, ICISA
Legislative Pathway
The path ahead is not short. The amendment must clear the European Parliament’s Committee on Economic and Monetary Affairs (ECON) before proceeding to full Parliament, and would ultimately require agreement from the European Commission and member states through the trilogue process. But the fact that it has been tabled at all reflects growing recognition among EU policymakers that the current LGD treatment is undermining a proven financing mechanism at a time when the bloc is trying to bolster trade and investment.
What This Means
If adopted, the amendment would remove a meaningful barrier to bank demand for credit insurance in Europe and could catalyze renewed growth in the product. For corporates and exporters, that translates to greater availability of bank-financed trade and potentially more competitive terms.
Regardless of the outcome in Brussels, the episode underscores a broader point: regulatory capital treatment is an increasingly important variable in the economics of trade credit insurance, and organizations that use the product — or are considering it — benefit from working with a broker that understands both the insurance and the regulatory dimensions.
Impello Global will continue to monitor this amendment and its implications for our clients.
If you have questions about how regulatory changes may affect your credit insurance program, or if you are exploring how credit insurance fits within your capital management strategy, we are here to help.
Impello Global Insurance Services, LLC
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