Strong Today, Uncertain Tomorrow as EIOPA Warns of Mounting Risks

Key Takeaways

• Fundamentals remain strong: Premium growth, solvency ratios, and profitability all improved in 2024.
• Risks are rising: Interest rate volatility, trade disruption, and FX fluctuations are testing hedging and liquidity.
• Cyber and climate threats intensify: EIOPA highlights the growing impact of AI-enabled cyberattacks and underinsured catastrophe losses.
• Investment portfolios shift: Increased allocation to alternative assets brings higher returns, but also new risks.
• Vigilance is key: EIOPA urges insurers and pension funds to prepare for a more complex and uncertain world.

Deep Dive

Europe’s insurers and pension funds might be standing tall right now (capital buffers solid, premiums growing, and profits holding up) but the European Insurance and Occupational Pensions Authority (EIOPA) is urging them not to let their guard down. In its June 2025 Financial Stability Report, the regulator strikes a careful balance: acknowledging the sector’s resilience while pointing to a world growing less predictable by the day.

The numbers are, on their face, reassuring. Life premiums climbed 13.8% in 2024 to €758 billion, non-life premiums were up 8.2%, and solvency ratios, while slightly off their late-2023 peaks, remained comfortably above regulatory thresholds. Technical cash flows rebounded into positive territory after a rocky patch, and the return on equity improved from 8.0% to 9.3%, buoyed by a surge in consumer demand for insurance products.

But while the data paints a picture of strength, the environment insurers are operating in is anything but calm. Shifting interest rates, foreign exchange volatility, and rising geopolitical friction are creating ripple effects across investment portfolios. Earlier this year, a major German spending package on defense and infrastructure sent European interest rates spiking, just as the U.S. dollar began to weaken. For firms with large positions in U.S. assets, and especially those relying on derivatives to hedge currency and interest rate risk, this created a sudden liquidity squeeze. Margin calls hit hard in March, and while gains on some FX positions helped cushion the blow, the episode underscored just how quickly cross-border exposures can turn into balance sheet headaches.

And that’s just the financial side of the story. EIOPA also flagged rising cyber risks as a key concern. With geopolitical tensions running high, cyberattacks are becoming more frequent and more sophisticated. Network outages and extortion threats top the list of incidents reported, while the growing use of artificial intelligence is making matters worse. Insurers themselves are deploying AI for efficiency and automation, but the same tools are being weaponized by bad actors. The EU’s Digital Operational Resilience Act (DORA), now in effect, aims to rein in this risk by introducing stricter oversight of critical third-party tech providers. But EIOPA makes it clear that implementation will take time, and AI-driven threats aren’t waiting around.

Climate-related risk is another area where cracks are beginning to show. Natural catastrophe losses in Europe reached $31 billion last year, with just $14 billion of that covered by insurance. The global figure was an eye-watering $320 billion. In response, EIOPA and the European Central Bank have proposed an EU-wide reinsurance backstop and a dedicated disaster fund to close the protection gap. The regulator is also urging changes to capital requirements, particularly for exposures tied to fossil fuels and high-risk geographies.

Amid this volatility, insurers are adjusting. Portfolios remain weighted toward fixed-income assets, but there's growing interest in alternatives like real estate, structured notes, and private equity. These offer diversification and yield, but they’re harder to exit in a downturn, and after last year’s decline in property values, EIOPA is keeping a close eye on the sector’s real asset exposures. Pension funds, too, are in the process of adapting. Their equity positions saw a 17% valuation bump in 2024, helping assets grow faster than liabilities, but heavy U.S. exposures mean they’re just as vulnerable to FX shocks as their insurance counterparts.

The industry has done well to weather recent storms, but the conditions ahead may be more difficult to navigate. A changing trade order, rising cyber threats, climate extremes, and growing market unpredictability mean that risk management strategies will need to evolve and fast. The sector may be strong, but this is no time to get complacent.

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.