The European Insurance and Occupational Pensions Authority (EIOPA) published today its June 2025 Financial Stability Report, which offers a summary of how Europe’s insurance, reinsurance and occupational pensions sectors are faring in the current volatile macroeconomic environment. The sectors remain robust and well-capitalised despite a challenging global landscape, but risks related to the volatility of exchange rates, interest rates and equity valuations as well as entities’ exposure to geopolitical risks, including their cyber dimension, need closer monitoring.
Europe’s broader macroeconomic landscape has become vulnerable in an environment where long-standing international norms and agreements are under mounting pressure, and global trade and defence structures are undergoing profound shifts.
Rollercoaster on trade and its ripple effects
Uncertainties about the future of international collaboration, along with unpredictable announcements of barriers to global trade, have introduced significant volatility in equity markets and currency exchange rates. Long-term interest rates remain elevated, while spreads have repriced in response to the expected impact of US tariffs on their trading partners.
The US dollar weakened in spring 2025 against a basket of currencies including the euro, while European interest rates spiked in March following the unveiling of a major spending package by the incoming German government on defence and infrastructure.
Cyber risks remain material amid high-running geopolitical tensions, with network interruption and cyber extortion being the most frequent types of cyberattacks. Natural catastrophes continue to put pressure on insurers as well.
Sectors have strong fundamentals
The European insurance sector’s aggregate capital position under the current Solvency II framework continues to be robust and stable, despite lower ratios compared to end-2023. The median SCR ratio for life insurers decreased after the upward trend experienced in the last years and was at 230% at year-end 2024 (246% in Q4 2023). This development is mainly driven by a slight decline in interest rates during 2024. The median SCR ratio for composite, non-life and reinsurance undertakings also declined, albeit to a lesser extent, to 216%, 214% and 223%, respectively (from 225%, 217% and 235% in the previous year).
Premium growth in the non-life sector grew by 8.2% year-on-year in 2024, outpacing the growth of the previous year. Gross written premium in the life sector grew even more, rising by 13.8% to €758 billion. Technical cash flows in this line of business (premiums minus claims, surrenders and expenses) rebounded into positive territory after spending the last year in the red. This flare-up in demand for insurance products is likely driven by higher savings rates in a disinflationary environment and indicates that lapses may have peaked.
The insurance sector’s profitability also saw notable improvement in 2024. The median return on assets rose to 0.7%, up from 0.6% the previous year. The median return on excess assets over liabilities – a proxy for return on equity – increased from 8.0% to 9.3%. While investment returns remain strong, insurers should remain cautious about potential market corrections in the current fickle environment.
Reinsurers on the continent strengthened their balance sheets, ending 2024 with a median solvency ratio of 235%, up from 223% in 2023. However, given their global presence and multi-currency operations, reinsurers will need to continuously assess the impact of potential trade barriers on their business.
The European occupational pension sector also remains resilient and well-capitalised. Assets managed by institutions for occupational retirement provision (IORPs) grew faster than their liabilities and their financial position improved slightly.
Derivatives, asset allocation and exposures to risks
(Re)insurers and IORPs make use of derivative contracts to hedge both interest rate and currency risks. Margin payments linked to these positions can amplify or offset each other. The sudden rise in European interest rates in spring 2025 and the appreciation of the euro against the US dollar may have partially offset liquidity needs for entities that hedged for both.
In terms of investments, almost two thirds of insurers’ portfolios are geared towards low-risk, fixed income assets, which can provide a shield against declines in market valuation. These exposures are followed by equities, accounting for 21.7% of insurers’ investments. A quarter of insurers’ equity portfolio is invested in US shares, whereas more than half of IORPs’ equity investments go towards US companies – with notable exposures to US corporate and government bonds as well.
Although tariffs target goods rather than services, both (re)insurers and IORPs are vulnerable to the indirect impacts of a disruption in global trade.