Risk levels in the European IORP market have remained stable, although there are persistent vulnerabilities stemming from high market volatility and an uncertain geopolitical environment, the European Insurance and Occupational Pensions Authority's (EIOPA) latest risk dashboard has found.

EIOPA's latest risk dashboard, which was based on Q4 2024 pension reporting data and Q1 2025 market data, showed that macro risks in particular remained stable during the period.

However, the dashboard noted that signs of weakness are emerging due to an increase in forecasted inflation and lower GDP growth in the first quarter of 2025.

It also pointed out that while the economic outlook may brighten depending on the policy choices of global actors, ongoing uncertainty about the commitment to free trade and international cooperation continues to weigh on current sentiment and may significantly affect the broader macroeconomic landscape.

This was not the only area of concern, as EIOPA revealed that market and asset return risks continue to be assessed at a high level, with a worsening risk outlook for the next 12 months.

These developments were mainly driven by heightened market volatility in equity and bond markets at the end of March 2025, as global markets reacted negatively following the introduction of US President, Donald Trump's tariffs in April 2025.

And while markets have stabilized, EIOPA cautioned that persistent policy uncertainty and the potential for escalation continue to pose significant risks, making a further correction in asset prices likely.

Liquidity risks were another increasing trend given current market conditions and considering the negative developments in IORPs’ derivative positions.

In particular, EIOPA said that the sharp increase in risk-free interest rates following major defence spending announcements have led to significant margin calls on IORPs that were hedging their long-term liabilities.

However, EIOPA said that the impact of higher-than-expected rates may have been partially offset by gains on currency hedges as the euro appreciated against the US dollar.

While the European IORP sector has shown resilience to liquidity outflows, EIOPA also said that the need for prudent and continuous liquidity management remains as undertakings adapt to potential market shocks.

The financial position of defined benefit IORPs remained robust in the fourth quarter of 2024, despite the median funding ratio falling to 119.7 per cent (122.1 per cent in the previous quarter), meaning that reserve and funding risks remained at a medium level.

Digitalisation & cyber risks were unchanged at the beginning of 2025 with no let-up in geopolitical tensions and related uncertainties.

In addition to this, environmental, social and governance (ESG) related risks remained stable at medium level.

However, EIOPA said that, looking forward, evolving dynamics in environmental agreements are making it more challenging to mitigate risks and to ensure consistent progress toward long-term sustainability goals.

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