EIOPA Warns of High Market Risks & Worsening Cyber Outlook

Key Takeaways

• Market Risks Remain High: EIOPA's October 2026 dashboards identify high market risks for European insurers and occupational pension funds, with increased bond volatility and the possibility of a broader market correction driving supervisory concerns.
• Cyber Outlook Deteriorates: Frontier AI models, geopolitical cyber threats and insurers' cyber underwriting exposures contribute to elevated digitalisation and cyber risks, with supervisors expecting conditions to worsen.
• Insurers Maintain Stable Capital Positions: Solvency and profitability risks remain at a medium level, while strong premium growth has helped reduce insurance risks to a low level.
• Pension Funding Improves: Reserve and funding risks for defined benefit pension schemes declined from medium to low, with the median funding ratio rising to 130.2% in the second quarter of 2026.
• Credit Quality Remains Strong: Credit risks remain at a medium level in both sectors, although supervisors continue to monitor borrowing costs, widening spreads and private credit quality.

Deep Dive

Bond market volatility increased toward the end of September, while sovereign and corporate bond spreads widened. For Europe's insurers and occupational pension funds, the movements added to concerns about borrowing costs, asset valuations and the possibility of a broader market correction.

The European Insurance and Occupational Pensions Authority (EIOPA) identified market risk as high in both sectors in separate dashboards. The authority also warned of a worsening outlook for cyber risks, citing threats associated with advanced artificial intelligence models and the potential for geopolitical conflicts to spill into digital systems.

The warnings come despite relatively stable financial conditions. Insurers have maintained broadly unchanged capital positions, and the financial position of defined benefit pension schemes improved during the second quarter. Supervisors nevertheless see considerable uncertainty in the markets where both sectors invest.

Geopolitical instability remains a central concern. EIOPA warned that renewed tensions could prompt investors to demand higher risk premiums, potentially triggering a broader correction in markets where valuations remain elevated.

Bond Volatility Puts Investment Risks in Focus

EIOPA maintained its assessment of insurers' macroeconomic risks at a medium level but assigned the category a deteriorating outlook. The economy has remained resilient, although geopolitical uncertainty and the prospect of rising interest rates have raised concerns about sovereign debt sustainability.

Credit risks were more stable. Insurers continued to benefit from high-quality investment portfolios and broadly unchanged credit fundamentals, even as spreads widened moderately. The authority identified debt financing costs and private credit quality as areas requiring continued monitoring.

For occupational pension funds, the picture was similar. Sovereign and corporate bond spreads had widened by the end of September, and increased bond market volatility contributed to elevated market and asset return risks.

The pension dashboard also pointed to persistently high market valuations. A renewed bout of geopolitical tension could prompt investors to reassess risk premiums, putting further pressure on asset prices.

These concerns are particularly relevant to pension institutions because investment performance affects their ability to support long-term retirement obligations. The consequences of market movements vary by scheme, however, depending on its assets, liabilities and funding arrangements.

Cyber Threats Draw Greater Supervisory Attention

EIOPA's assessment of digitalisation and cyber risks was similarly concerning. Both sectors received an elevated risk assessment with a worsening outlook. For insurers, the authority cited risks associated with frontier AI models, digital spillovers from geopolitical conflicts and exposures arising from cyber insurance underwriting.

The underwriting exposure gives insurers an additional source of vulnerability. Beyond protecting their own systems, insurers may face claims resulting from cyber incidents affecting policyholders. EIOPA identified this exposure as a supervisory concern but did not quantify potential losses in its published summary.

Occupational pension funds face related threats. Supervisors remain concerned about cyber risks associated with frontier AI models and the potential use of cyberattacks in international conflicts.

The dashboards do not establish that either sector has experienced a new wave of cyber incidents. Their findings reflect supervisors' assessments of existing exposures and the direction in which those risks may develop.

Financial Conditions Remain Relatively Stable

The more encouraging findings came from the sectors' financial indicators. EIOPA maintained insurers' solvency and profitability risk assessment at a medium level, supported by broadly unchanged capital positions and mixed profitability indicators.

Insurance risks declined to a low level, helped by strong premium growth across life and non-life business and an improvement in the upper tail of the loss ratio distribution.

Environmental, social and governance risks were largely unchanged. Insurers modestly increased their green bond holdings, although supervisors expect the outlook for ESG-related risks to deteriorate over the next 12 months.

Occupational pension funds also recorded an improvement. The financial position of defined benefit schemes strengthened in the second quarter of 2026, reducing reserve and funding risks.

The improvement offers some protection against financial uncertainty, although it does not eliminate exposure to market volatility. Pension institutions remain sensitive to changes in investment returns and the broader economic environment.

EIOPA's two assessments show that the sectors' immediate financial condition is not the principal source of supervisory concern. Insurers have reported stronger premium growth and lower insurance risks, while pension schemes have improved their funding positions. The more difficult questions concern the investment environment and the growing range of cyber exposures facing both industries.

For supervisors, those risks remain elevated even as the financial indicators have held up.

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