The financial positions of IORPs in the European Economic Area have recovered following improvements in financial markets since the outbreak of the Covid-19 pandemic, a report from the European Insurance and Occupational Pensions Authority (EIOPA) has revealed.

EIOPA’s June 2022 Financial Stability Report, which examined the main trends for the European insurance and pensions sectors as well as the macroeconomic landscape with its implications, found that the total amount of assets increased whereas liabilities remained relatively unchanged.

The report also described the current European economy as being in a phase of “heightened uncertainty” as macroeconomic conditions had deteriorated as a result of Russia’s invasion of Ukraine.

Although the report found that the direct impact of the invasion of Ukraine on IORPs is very limited, second-round effects from the macro side and spill overs from other parts of the financial sectors could become a potential source of risk.

Volatility was also found to have returned to financial markets, being accompanied by rising interest rates as markets expected monetary tightening to head off inflation.

Bond and equity prices fell in view of the ongoing crisis and the risk of a further correction was found to be “material”.

EIOPA chair, Petra Hielkema, commented: “We are at a juncture in macroeconomic developments where inflation pressures from various sources meet.

“The pandemic has disrupted supply chains, caused pockets of bottle-up demand and seems to have shifted consumers’ spending habits. Russia’s invasion of Ukraine with all its consequences has only made pre-existing inflationary pressures worse.

“The impact of inflation on insurance and pension undertakings as well on policyholders and beneficiaries warrants our full attention.”

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