A capital rule change now under review in Brussels could remove one of the last disincentives keeping European insurers out of bank ownership, just as Fitch Ratings already expects bancassurance consolidation to pick up this year.
Fitch said a mechanism similar to the banking sector's Danish Compromise is under consideration by European authorities, and it could reduce the capital penalty insurers currently face for holding bank stakes.
Under Solvency II, insurers must deduct the Basel III capital requirements of any bank they own from their own funds in full. Banks, by contrast, already benefit from the Danish Compromise, which lets regulators risk-weight insurance stakes at 250% instead of deducting them outright.
European authorities are examining whether this gap gives banks an advantage over insurers when both participate in the same financial institutions.
Two regulatory tracks are moving in different directions on this question. On the banking side, the European Banking Authority's January 2026 Report on Consolidation confirmed a stricter reading of the Danish Compromise than some parties had anticipated, limiting its scope for banks.
On the insurance side, the revised Solvency II Directive appears to move the opposite way, with a similar non-deduction mechanism proposed for insurers' strategic participations in credit or financial institutions, and possibly with wider scope than its Capital Requirements Regulation counterpart.
Fitch said the European Commission could propose a Delegated Act, potentially in 2027, to close that gap. One option would let insurers treat significant bank stakes as strategic participations for Solvency II purposes, which would allow them to apply the standard 22% stress factor used for participations rather than the current deduction method.
The scale of the change could be considerable. Fitch estimated that regulatory capital requirements against such investments could fall by close to 80% under the proposed treatment.
The bank-stake relief would sit alongside a wider set of Solvency II changes already flagged by Fitch. The agency estimated the average capital benefit from the broader Level 2 reforms at 5% to 7% of insurers' solvency capital, with life insurers gaining more than non-life carriers.
Fitch called that package "mildly credit negative" for the sector, since it may underestimate spread risk and increase sensitivity to equity and credit market volatility, a caution that applies equally to any additional relief on bank holdings.
Fitch pointed to Unipol Assicurazioni S.p.A. as an illustration of the current treatment's effect. The insurer reported a Solvency II ratio of 295% at the end of the first quarter of 2026 on an insurance-group basis, against 248% once its bank participation was included on a group basis.
Fitch said more favourable capital treatment could prompt insurers seeking retail distribution networks to consider bank acquisitions. Such a move would give insurers a route to retail and mortgage banking customers that many have not pursued to date.
Fitch's own 2026 sector outlook lends some weight to that prospect. The agency expects European insurer M&A to pick up this year as softer non-life pricing, slower economic growth and stabilising investment yields limit organic earnings growth, with bancassurance named among the segments likely to see deal activity.
Fitch cautioned that acquisitions of this kind are not without risk for the acquiring insurer. Lower available capital and a higher-risk business profile could weigh on an insurer's own creditworthiness, even where the capital rules become more favourable.
Insurers do have an alternative to acquisitions. Existing financial conglomerate structures could instead be adjusted to manage capital more efficiently, though Fitch said this route carries its own complexity and execution risk.
Fitch also noted that a higher Solvency II ratio would not translate into a stronger credit profile on its own. Any assessment, the agency said, would need to account for each insurer's individual circumstances.
The current Solvency II review is due to take effect on 30 January 2027, and it does not introduce more favourable capital rules for insurers with bank stakes. Any change of the kind Fitch described would depend on a separate Delegated Act, with 2027 cited as a possible date for its introduction.
