The outlook for IORPs’ market and asset return risks is deteriorating, the European Insurance and Occupational Pensions Authority (EIOPA) has warned.

Its July 2025 Risk Dashboard for IORPs, based on Q1 2025 pension reporting data and Q2 2025 market data, places market and asset return risks at a high level — the same as in its previous update in May.

Overall, risks in the European IORP sector remain stable and at medium levels, as seen across all other risk categories. However, “persistent vulnerabilities” stem from elevated market volatility and an uncertain geopolitical environment.

The key drivers of the heightened market and asset return risks were the volatility observed in the equity market at the end of June. However, there was a reprieve as bond market volatility decreased compared to the previous assessment.

“In terms of investments, the median exposure to bonds as a share of total assets (including exposures to collective investment undertakings (CIUs) investing in bonds) was largely unchanged at 55.2 per cent in the first quarter of 2025, while the share for equity decreased to 24.9 per cent (25.9 per cent in the previous quarter),” EIOPA’s Risk Dashboard stated.

On a more positive note, however, the authority noted that real estate prices increased across the Euro Area by 0.5 per cent in the last quarter of 2024 (-5.1 per cent in the previous quarter), after two years of decline.

“This development was particularly driven by residential real estate prices, while commercial real estate prices remained subdued. The median exposure of IORPs towards property as a share of total assets was limited (below 1 per cent in Q1 2025), though the figure was higher when considering the weighted average for the sector (6 per cent). This indicates higher exposures for larger IORPs,” EIOPA said.

Furthermore, larger IORPs continued to show greater exposure to foreign currency-denominated assets, with a weighted average of 26.5 per cent of total assets allocated to such holdings in Q1 2025, compared to a sector-wide median of just 0.5 per cent.

Meanwhile, the median duration of IORPs’ assets remained broadly stable at slightly above five years, with the sector’s weighted average at around seven years.

Despite heightened market and return risks, IORPs posted solid investment performance in 2024. Portfolio returns, measured by investment income including unrealised gains and losses as a share of total assets, reached 6.6 per cent, following an 8 per cent return in 2023.

Operating costs remained steady over the same period, with the median cost ratio – covering administrative, investment, and other expenses – holding at 0.5 per cent of total assets.

Beyond market and return pressures, EIOPA’s assessment points to persistent macroeconomic uncertainty. While trade and tariff-related risks saw a temporary reduction, overall macroeconomic risks remained at a medium level.
Signs of economic weakness became more apparent, with lower GDP growth recorded across key global regions in the second quarter of 2025. Forecasted inflation, meanwhile, has edged closer to policy rates, reflecting a slight downward shift in expectations.

In addition, liquidity risks are trending upward, driven in part by adverse developments in IORPs’ derivative positions and broader market conditions. Nonetheless, stock-based indicators suggest that IORPs entered 2025 with relatively sound liquidity buffers.

On the funding side, defined benefit IORPs maintained a robust financial position in the first quarter. Digitalisation and cyber risks also remain at a medium level, though their relevance continues to grow amid persistent geopolitical tensions and the broader climate of uncertainty.

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