The European Insurance and Occupational Pensions Authority (EIOPA) has focused on five specific areas relevant to occupational pension funds and insurers in its 2025 Financial Stability Report, as it revealed that the funding ratio of IORPs has risen above 120 per cent.

Its annual report analyses the risks and vulnerabilities facing the institutions, in a period marked by economic fragility, subdued growth and high uncertainties about the future of international collaboration and its implications on the economy.

The five focus areas include: exposure to private credit, risks stemming from a weakening dollar, global market interconnectedness, cyber risk as a potential systemic threat, and the role of artificial intelligence (AI) in amplifying existing systemic vulnerabilities.

Despite these risks, in addition to a “fragile economic environment”, EIOPA said occupational pension funds and insurers have “stayed resilient and well-capitalised”.

“However, adverse developments in the current environment could trigger a repricing of risk premia, underscoring the need for continued monitoring and prudent risk management,” EIOPA warned.

Regarding private credit investments, the report noted that private credit markets have grown substantially in recent years, noting that private assets typically offer an illiquidity premium and portfolio diversification benefits that make them attractive to long-term investors.

According to EIOPA’s analysis, insurers’ private credit exposure totalled €514bn (or 5.1 per cent of total assets) at the end of 2024, while exposure for IORPs stood at €128bn (or 4.4 per cent of total assets).

Of this, mortgages and loans accounted for around two-thirds of private credit exposures, followed by unlisted or untraded corporate bonds and collateralised securities subject to credit risk. Exposures also showed considerable cross-country variation, alongside sectoral and geographical concentrations, which EIOPA warned can offset diversification gains and amplify losses in a downturn.

“Private credit is also characterised by higher credit and liquidity risk, valuation uncertainty and hidden leverage, which, if not properly managed, can significantly affect exposed undertakings. Continued monitoring of private credit exposures – including concentration metrics – remains essential to mitigating the build-up of potential systemic risks,” the authority stated.

In terms of the weakening of the dollar, EIOPA’s analysis indicated that European insurers and IORPs collectively held around €1.8trn in US dollar assets at the end of last year. While the exposures are sizeable, EIOPA noted that insurers and occupational pension funds share market risk with policyholders and beneficiaries in the case of unit-linked and defined contribution portfolios.

In this area, the authority said insurers face a more complex set of challenges as a weakening dollar can affect not only their investments but also their liabilities and profitability. For pension funds, derivatives to hedge FX risk are often used, while also benefiting from implicit hedging when the US dollar and US equity markets move in opposite directions.

Despite this, EIOPA said the findings underline the importance of continued monitoring of hedging practices and FX risk management.

Its third area of focus, the interconnectedness with global markets, EIOPA warned that although international exposures can offer diversification benefits and improved returns, they can also increase market, currency and counterparty risks as well as underwriting vulnerabilities.

In its chapter on cyber risks, the authority cautioned that technological interdependencies that cut across sectors and borders create vulnerabilities to both malicious and accidental incidents, with the potential to generate large economic and insured losses, even from a single event.

“These vulnerabilities underscore the need for closer cooperation, improved data collection and more advanced modelling of accumulation risks,” it said.
Finally, EIOPA explored the growing use of AI in the insurance sector and its potential implications for financial stability.

“While most current applications remain operational, future use cases in underwriting, investment and risk management could amplify existing systemic vulnerabilities,” it warned.

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