EIOPA’s 2025 Risk Check: Stability Holds, but Market Uncertainty Looms

Key Takeaways

• Stable Yet Challenged: While European insurers maintain a relatively stable outlook, market volatility and real estate price swings continue to pose significant concerns.
• Tightening Liquidity: Funding conditions have worsened in the final quarter of 2024, adding complexity for insurers even as solvency and profitability risks remain at medium levels.
• Persistent Market and Macroeconomic Risks: Despite moderate inflation and GDP growth, high bond volatility and shifting geopolitical tensions keep the competitive landscape unpredictable.
• Rising ESG and Cyber Threats: As skepticism around environmental agreements grows and digital transformation accelerates, insurers face increasing ESG-related risks and a heightened cyber threat landscape.

Full Article

European insurers might not be in the eye of the storm, but they’re certainly navigating some choppy waters. The European Insurance and Occupational Pensions Authority (EIOPA) just released its latest Insurance Risk Dashboard, offering a snapshot of an industry that’s stable—at least for now—but not without its fair share of concerns. Market volatility and real estate price swings continue to cast shadows over an otherwise steady outlook, with liquidity and funding conditions tightening just enough to keep insurers alert.

Macroeconomic risks, while present, are holding firm at medium levels. Inflation and GDP growth are behaving themselves, but the world beyond the numbers tells a more complicated story. Geopolitical tensions are shifting global alliances and introducing new uncertainties into the financial landscape. Insurers, long accustomed to hedging against unpredictability, now find themselves recalibrating for an era where international cooperation is more fragile than ever.

Market risks, meanwhile, refuse to budge from the high-risk category. Bond volatility may have eased slightly, but it remains above historical norms, meaning insurers can’t afford to let their guard down. The market is still throwing curveballs, and those with significant investment portfolios will need to stay sharp to avoid getting caught off balance.

On the liquidity and funding front, there’s an upward creep in risks, a trend that has been slowly building throughout 2024. The final quarter of the year saw a worsening of funding conditions, adding another layer of complexity for insurers already navigating a tightening financial environment. Yet, despite these pressures, solvency and profitability risks remain stable at medium levels. Non-life insurers enjoyed a slight improvement in solvency ratios in Q3 2024, though their life insurance counterparts saw little movement in either direction.

Beyond the numbers, the ESG landscape is becoming more complicated. Over the next 12 months, EIOPA anticipates an uptick in ESG-related risks as skepticism around environmental agreements grows and regulatory priorities continue to shift. Staying on course with sustainability goals will be no easy task in an environment where long-term commitments are being tested by short-term uncertainties.

Meanwhile, digitalization is presenting its own set of challenges. Cyber risks are creeping higher, as supervisors report a growing perception that these threats are increasingly likely to materialize. The rapid pace of digital transformation has introduced efficiencies, but it has also expanded insurers’ attack surfaces, making cybersecurity an ever-more pressing concern.

EIOPA’s dashboard pulls from Solvency II data, analyzing reports from 93 insurance groups and over 2,100 solo insurance undertakings. The findings, drawn from financial stability and prudential reporting through Q3 2024 and the end of 2023, are further complemented by market data through December 2024.

So, where does that leave insurers? In a position of relative stability, but with no shortage of challenges on the horizon. Market turbulence, regulatory shifts, and cyber threats will keep firms on their toes, reinforcing the age-old lesson that in the world of insurance, vigilance is the name of the game.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.