European Insurers Hold Firm as EIOPA Warns Next Risks May Be Harder to Measure

Key Takeaways

• European Insurance Sector Demonstrates Resilience: Strong capital, liquidity and profitability enabled insurers and pension funds to withstand continued geopolitical and market volatility throughout 2025.
• Geopolitical Risk Remains the Primary Concern: Supervisors continue to view geopolitical tensions, shifting trade dynamics and sovereign exposures as the most significant threats to financial stability.
• AI and Private Markets Introduce New Vulnerabilities: EIOPA warns that artificial intelligence, third-party dependencies, cyber risk and expanding private markets require closer supervisory attention despite their potential benefits.
• Resilience Is Becoming More Complex: Financial strength remains solid, but operational resilience, financial interconnectedness and structural risks are increasingly shaping the sector's long-term stability.

Deep Dive

European insurers and occupational pension funds entered 2026 from a position most financial regulators would envy. Markets lurched in response to geopolitical shocks. Trade relationships continued to shift. Investors repriced risk. Yet the core indicators supervisors watch most closely (capital, liquidity and solvency) held up remarkably well. That is what the European Insurance and Occupational Pensions Authority's latest Financial Stability Report, published Wednesday. It is also, in many ways, the easy part of the story.

The report finds that European insurers and pension funds remained resilient throughout 2025, supported by strong capitalization, healthy liquidity positions and improving profitability. Life and non-life insurers benefited from premium growth and stronger investment returns, while occupational pension funds saw funding positions strengthen alongside favorable equity market performance. Even reinsurers, despite slower premium growth across parts of the market, continued to post robust profitability under favorable underwriting conditions.

None of that comes as much of a surprise. Europe's insurance sector has spent years rebuilding capital, tightening risk management and adapting to successive waves of economic disruption, from the pandemic to inflation and rising interest rates. What stands out in EIOPA's latest assessment is not concern about the industry's balance sheets. It is the changing nature of the risks pressing against them.

Geopolitical tensions remain the dominant source of uncertainty. The report points to a landscape shaped by shifting trade relationships, higher defense spending and persistent international instability, all of which continue to ripple through financial markets. Equity, bond and foreign exchange markets have become more sensitive to geopolitical developments, while uncertainty surrounding inflation, energy prices and future policy decisions continues to complicate the outlook, even as low unemployment and rising real wages provide some support for broader economic activity.

For insurers, those pressures extend beyond day-to-day market volatility. EIOPA identifies continued exposure to the repricing of financial risk, interest rate and foreign exchange movements, claims inflation and developments affecting internationally exposed lines of business. None represents an immediate threat to sector stability. Together, however, they describe an operating environment in which resilience depends less on surviving a single shock than on absorbing a succession of them.

That same theme runs through the report's treatment of artificial intelligence. EIOPA acknowledges the technology's growing ability to improve efficiency across underwriting, claims management and other parts of the insurance value chain, but it spends considerably more time examining the conditions that accompany wider adoption. As insurers become increasingly dependent on AI-enabled systems, supervisors see growing operational exposure through cyber risk, third-party technology providers, data governance and broader questions of operational resilience. The issue is no longer whether firms will use AI. It is whether the infrastructure supporting those systems proves as resilient as the balance sheets deploying them.

Private markets present a similar picture. Insurers' and pension funds' aggregate exposure to private credit remains relatively limited, according to the report, but supervisors are watching the market's rapid expansion with increasing attention. More complex investment structures, less liquid assets and the possibility of concentrated exposures create risks that are difficult to observe during periods of market calm and considerably harder to unwind when conditions deteriorate.

Reinsurers face another set of uncertainties. Although solvency ratios improved during 2025, EIOPA says firms should continue monitoring risks associated with natural catastrophes alongside geopolitical developments that could disrupt marine and aviation transport. Those exposures have always existed. What has changed is the degree to which they increasingly overlap, allowing climate events, armed conflict and supply chain disruption to reinforce one another rather than arrive as isolated incidents.

The report also examines Europe's occupational pension sector, where funding positions improved during the year while total assets remained broadly stable. Particular attention is given to the Netherlands' ongoing transition toward a defined contribution pension system, a structural shift that EIOPA says could influence investment strategies, hedging activity and broader market dynamics as implementation continues.

Throughout the report, supervisors return to a common observation. Financial strength remains the sector's defining characteristic, but financial strength alone is no longer the only measure of resilience. Sovereign exposures, interconnectedness with banks and other financial institutions, operational dependencies, emerging technologies and increasingly complex investment markets now sit alongside traditional measures of solvency in shaping the industry's risk profile.

For now, those risks remain manageable. Strong solvency positions and adequate liquidity buffers continue to provide insurers and pension funds with substantial capacity to absorb future shocks. The challenge EIOPA identifies is less about today's balance sheet than tomorrow's operating environment, where resilience will depend not only on capital but on how effectively institutions manage risks that are becoming more interconnected, less predictable and, in many cases, harder to measure before they matter.

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