The European Insurance and Occupational Pensions Authority (EIOPA) has launched its 2025 stress test for IORPs in Europe, with a specific focus on liquidity risks following recent market episodes.

In its fifth year, the authority’s stress test sample includes all countries within the European Economic Area, with total registered IORPs exceeding €600m.

Participants have been selected to cover at least 60 per cent of each national market, while giving priority to IORPs that use derivatives.

The 2025 exercise assesses the ability of IORPs to respond to and deal with adverse economic developments.

It features two distinct scenarios – developed in collaboration with the European Systemic Risk Board – which simulate sharp increases and declines in interest rates, respectively.

Under the ‘yield curve up’ scenario, interest rates increase sharply as market participants anticipate economic developments related to an abrupt escalation of geopolitical tensions. EIOPA said this would lead to trade disruptions, higher commodity prices and weaken the euro against other reference currencies.

In contrast, in the ‘yield curve down’ scenario, interest rates plummet as market participants internalise the effects of prolonged geopolitical tensions, triggering a loss of confidence in financial markets.

In this case, a persistent lack of investment and subdued productivity would lead to lower GDP growth. EIOPA said that global risk-free rates decline, and the euro depreciates sharply due to the unanticipated prolongation of geopolitical tensions and a worsening economic outlook for the region.

“In both scenarios, the deterioration in the economic outlook leads to a loss of confidence in financial markets and to disorderly adjustments in asset prices,” EIOPA stated.

“The scenarios are designed to gauge the impact of these shocks on the liquidity position of IORPs and to assess their ability to manage liquidity risks under various economic conditions. The stress test exercise will also analyse aggregate responses to these shocks to evaluate potential spillover effects that may arise from IORPs’ management actions.”

EIOPA expects to publish the results of its stress test in mid-December 2025.

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