Europe’s insurance sector ‘robust’ and ‘well-capitalised’ but warnings issued over geopolitical/macroeconomic risk

Written by Adam Cadle

19/06/2025

Europe’s insurance and reinsurance sectors remain robust and well-capitalised despite a challenging global landscape, EIOPA’s latest Financial Stability Report has revealed, but risks related to the volatility of exchange rates, interest rates and equity valuations as well as exposure to geopolitical risks need monitoring.

The report showed that the European insurance sector’s median SCR ratio for life insurers decreased after the upward trend experienced in the last years and was at 230% at year-end 2024 (246% in Q4 2023) but remains robust. This development is mainly driven by a slight decline in interest rates during 2024. The median SCR ratio for composite, non-life and reinsurance undertakings also declined, albeit to a lesser extent, to 216%, 214% and 223%, respectively (from 225%, 217% and 235% in the previous year).

Premium growth in the non-life sector grew by 8.2% year-on-year in 2024, outpacing the growth of the previous year. Gross written premiums in the life sector grew even more, rising by 13.8% to €758bn. Technical cash flows in this line of business (premiums minus claims, surrenders and expenses) rebounded into positive territory after spending the last year in the red. This flare-up in demand for insurance products is likely driven by higher savings rates in a disinflationary environment and indicates that lapses may have peaked.

The insurance sector’s profitability also saw notable improvement in 2024. The median return on assets rose to 0.7%, up from 0.6% the previous year. The median return on excess assets over liabilities – a proxy for return on equity – increased from 8.0% to 9.3%. While investment returns remain strong, insurers should remain cautious about potential market corrections in the current fickle environment, EIOPA warned.

Reinsurers on the continent strengthened their balance sheets, ending 2024 with a median solvency ratio of 235%, up from 223% in 2023.

In terms of investments, almost two thirds of insurers’ portfolios are geared towards low-risk, fixed income assets, which can provide a shield against declines in market valuation. These exposures are followed by equities, accounting for 21.7% of insurers’ investments. A quarter of insurers’ equity portfolios are invested in US shares.

“Uncertainties about the future of international collaboration, along with unpredictable announcements of barriers to global trade, have introduced significant volatility in equity markets and currency exchange rates,” EIOPA added.

“Long-term interest rates remain elevated, while spreads have repriced in response to the expected impact of US tariffs on their trading partners.

“The US dollar weakened in spring 2025 against a basket of currencies including the euro, while European interest rates spiked in March following the unveiling of a major spending package by the incoming German government on defence and infrastructure.

“Cyber risks remain material amid high-running geopolitical tensions, with network interruption and cyber extortion being the most frequent types of cyberattacks. Natural catastrophes continue to put pressure on insurers as well.”

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