The European Insurance and Occupational Pensions Authority (EIOPA) published today the second occasional research paper of 2025, which sheds light on the investment behaviour of European insurance companies in mutual funds that are experiencing large outflows. The study reveals that insurers play an important stabilising role by acting as contrarian traders.
The research paper – authored by experts from the Frankfurt School of Finance & Management, the Deutsche Bundesbank and EIOPA – explores the extent to which insurers domiciled in the European Economic Area step in to buy shares in mutual funds when other investors are selling their stakes. By analysing security-level regulatory data and fund-level information on net inflows, the study provides valuable insights into the investment patterns of insurers. The focus on open-ended mutual funds is particularly relevant given that some of these funds may be susceptible to liquidity crises.
The analysis reveals that similarly to banks – who have vast liquidity pools as well as access to central bank facilities – insurers also act as contrarian traders to funds experiencing significant outflows (i.e. buying when others sell). The study also shows that a significant proportion of such purchases by insurers is concentrated in funds that are affiliated with them. As a result, insurance-backed funds in the sample showed lower volatility and a lower flow-performance sensitivity than their peers. Further, the research finds that the extent to which insurers provide inflows is closely tied to their own financial health, with better-capitalised entities more likely to provide backstops than entities that are less well-capitalised.
The investment patterns uncovered in the research paper provide interesting insights for the stability of the financial system. Firstly, by acting as contrarian traders, particularly to affiliated funds, insurers help mitigate the impact of potential investor runs and enhance market resilience. Secondly, they suggest that the contrarian trading of insurers may prove more modest in times of severe systemic stress when insurers’ own financial health comes under pressure. The loss of this stabilising force could leave mutual funds more vulnerable to panic-induced withdrawals and exacerbate financial turbulences.
Background
EIOPA launched its “Occasional Research Papers” earlier in 2025. These papers present the joint work of external researchers and academics in collaboration with EIOPA experts, using Solvency II and IORPs reporting data. Born from collaborative exchanges within the External Research Platform that EIOPA established in 2020, these publications explore key issues in the EU’s (re)insurance and occupational pensions sectors.
The views expressed in these papers are those of the authors and do not necessarily reflect the official stance of EIOPA, its member institutions, or any institution with which the authors may be affiliated.