The European Insurance and Occupational Pensions Authority (EIOPA) has released its June 2025 Financial Stability Report, outlining the current state of Europe’s re/insurance and occupational pensions sectors in the context of ongoing macroeconomic and geopolitical shifts.
According to the report, the sectors remain well-capitalized under the prevailing Solvency II framework, despite elevated market volatility and increased exposure to geopolitical risks, including cyber-related threats.
However, EIOPA noted that risks linked to fluctuating interest rates, currency movements, and equity valuations require continued monitoring.
The broader economic environment in Europe has been shaped by structural changes in international trade and defense frameworks. Uncertainty surrounding global cooperation and new trade restrictions has led to greater instability in financial markets.
In spring 2025, the US dollar declined against several major currencies, including the euro, while interest rates in Europe rose sharply following Germany’s announcement of a substantial fiscal package focused on defense and infrastructure investment.
EIOPA identified cyber risk as an area of concern, with network interruption and extortion attempts remaining frequent attack types. Natural catastrophe exposures also continue to pressure re/insurers’ operations and capital.
Aggregate solvency capital ratios (SCR) for European re/insurers remain above regulatory thresholds, though slightly lower than prior reporting periods. For life re/insurers, the median SCR ratio fell to 230% at the end of 2024 from 246% in the previous quarter, primarily due to interest rate movements during the year.
Profitability metrics showed moderate improvement in 2024. The median return on assets rose from 0.6% to 0.7%, while the median return on excess assets over liabilities, often used as a proxy for return on equity, increased from 8.0% to 9.3%. Despite solid investment performance, EIOPA warned that re/insurers should remain aware of the risk of sudden market corrections.
The report also noted that European reinsurers strengthened their capital base, finishing 2024 with a median solvency ratio of 235%, up from 223% the previous year. Still, the global operations of many reinsurers mean they must continually assess the effects of trade restrictions, particularly in relation to currency exposures and cross-border liabilities.
Institutions for occupational retirement provision (IORPs) also showed improved financial resilience, as asset growth outpaced liabilities. EIOPA attributed this to market movements and continued contributions from plan sponsors and members.
Although recent tariff measures have targeted the trade of goods rather than services, EIOPA noted that both re/insurers and IORPs may still face indirect effects from disruptions in global trade flows. These impacts could affect asset valuations and operating conditions through broader economic transmission channels.
(AC) The report pointed to increased interest in asset-intensive and funded reinsurance transactions, where both underwriting risk and associated investment assets are ceded to third-party reinsurers.
While these arrangements can provide balance sheet relief for ceding entities, EIOPA emphasized the need for heightened oversight due to their potential to introduce additional credit and operational risks – especially when executed across offshore structures that fall under varying supervisory standards.
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