The European Insurance and Occupational Pensions Authority (Eiopa) has proposed new rules that could significantly impact insurance companies across the European Union. According to these proposals, insurers would be required to reserve 100% of their capital to cover risks associated with crypto assets.
This means that any investments in cryptocurrencies, stablecoins, or tokenized assets must be fully capital-backed—a major increase compared to current requirements.
Rationale Behind the Proposal
Eiopa emphasizes that the measure is necessary to mitigate the risks linked to crypto assets, such as:
- High volatility: Prices of cryptocurrencies can fluctuate dramatically in short periods.
- Low liquidity: In certain situations, selling crypto assets quickly without significant losses may be difficult.
- Lack of transparency: Not all crypto assets provide sufficient transparency regarding their origin or structure.
- Manipulation risks: Low regulation makes cryptocurrencies more susceptible to market manipulation.
These factors could lead to substantial financial losses for insurers, especially during economic instability.
Current State and Market Impact
As of the end of 2023, European insurers held €655 million in crypto assets, representing less than 0.01% of their total assets, which are valued at €9.6 trillion. Most of these holdings are managed indirectly through investment funds in Luxembourg.
Differences in Regulatory Approaches
Compared to the EU, other regulators have adopted more flexible approaches to crypto assets. For example:
- The Basel Committee recommends splitting crypto assets into lower-risk (e.g., stablecoins) and higher-risk categories, with different capital requirements for each.
- In the United States, regulators have shown a more permissive stance, easing certain restrictions for financial institutions investing in crypto.
Potential Implications for Insurers
- Reduced crypto investments: High capital requirements may make crypto investments economically unfeasible for insurers.
- Shift to alternative assets: Companies may pivot toward lower-risk opportunities such as green bonds or infrastructure investments.
- Impact on innovation: Lower participation in crypto markets could slow innovation in financial sectors, particularly in decentralized finance (DeFi).
EU member states vary in their regulatory maturity regarding crypto assets. Countries like Luxembourg and the Netherlands already have developed infrastructure for handling crypto, whereas nations such as Poland and Hungary may be less prepared.
This could result in uneven impacts of Eiopa’s proposed rules across different countries.
Eiopa’s proposals could set a precedent for regulators worldwide. However, implementation requires approval from both the European Commission and the European Parliament, which could take several years. Meanwhile, the crypto market itself is likely to evolve.
Eiopa’s 100% capital requirement proposal is ambitious and could have a significant effect on the EU insurance sector. Insurers should begin evaluating potential risks and opportunities related to crypto assets now to prepare for future regulatory changes.
