Europe’s insurance and occupational pensions sectors have remained robust on aggregate despite “widespread challenges”, the European Insurance and Occupational Pensions Authority (EIOPA) has stated.

Its June 2024 Financial Stability Report noted that occupational pension funds were navigating a macroeconomic environment marked by high geopolitical tensions, a string of elections in large economies, uncertainties about the economic outlook, and waning support for globalisation and international cooperation.

EIOPA urged the pension and insurance sectors to be on the guard for emerging risking.

Institutional investors, such as pension funds, were found to be looking for yields in alternative assets, which the authority noted tend to be more illiquid and often more complex in their structure and approach to valuation than traditional asset classes.

“Sizeable allocations to alternative assets that are often illiquid, difficult to valuate and whose valuation is highly sensitive to interest rates have raised supervisory and financial stability concerns,” EIOPA said.

“As a result, supervisors are closely monitoring the risks associated with such investments.”

Beyond the macro and market risks, pension funds were also grappling with climate-change related risks, as well as those linked to digitalisation and cyber security.

The report highlighted that 2023 was another year of high natural disaster loss, with climate change-induced extreme weather events causing around €240bn in economic losses worldwide.

Furthermore, EIOPA said that supervisors from across Europe were increasingly concerned about risks related to digitalisation.

While this risk category was currently at a ‘medium level’, forward-looking assessments pointed to an increase, with cybersecurity weaknesses and hybrid geopolitical conflicts being the primary concerns.

It noted that legislative initiatives such as the Digital Operational Resilience (DORA), the Artificial Intelligence Act, and the European Single Access Point (ESAP) were all aiming to enhance the financial sectors’ resilience to digital threats.

“At a time of growing uncertainties and rising scepticism about the future of international cooperation, EIOPA remains steadfast in its mission to foster financial stability in Europe’s insurance and pension markets,” commented EIOPA chair, Petra Hielkema.

“Our industries have demonstrated remarkable resilience and have proven their strength in the face of various, rapidly evolving challenges.

“However, we cannot afford to be complacent going forward. We must remain vigilant regarding emerging risks and find responses to them that will further strengthen our sector, benefit citizens and contribute to a safer and more sustainable world.”

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