The European Insurance and Occupational Pensions Authority (EIOPA) has today published its January 2025 Risk Dashboard on institutions for occupational retirement provision (IORPs), which shows that risks in the European IORP sector are stable and overall at medium levels, with ongoing signs of vulnerabilities stemming from market volatility.
This IORP Risk Dashboard, based on the latest IORP reporting data with reference up to the third quarter of 2024, summarises the main risks and vulnerabilities in the IORP sector of the European Economic Area (EEA) for the different schemes – defined contributions (DC) and defined benefits (DB) — through a set of risk indicators.
The data is based on regulatory reporting collected from 625 IORPs. The IORP reporting information is complemented with market data with a cut-off date of end-December 2024.
The dashboard data disclosed that macro-related risks are at a medium level with the weighted average of the 10-year swap rates for major currencies showing an increase (2.8% in the fourth quarter of 2024), while the average forecasted GDP growth and inflation remained overall stable at 1.5% and 2.2%, respectively.
Looking ahead, EIOPA said that “geopolitical tensions are reshaping global dynamics, heightening concerns about declining international cooperation and escalating risks and uncertainties in the years to come”.
Credit risks remain at a medium level. Credit default swaps spreads for government and corporate bonds remained overall stable at end-December 2024 when compared with September. The median exposure of IORPs towards sovereign as a share of total assets remained unchanged (14.3%), while for corporate bonds it slightly decreased (2.1%) in the third quarter of 2024.
However, market and asset return risks remain high with bond market volatility stabilising at end-December, but still elevated compared with historical norms, the dashboard showed.
Real estate prices continued to decline across the euro area, although at a slower pace in the last quarter (-4.2% in the second quarter of 2024 from -7.5% in the previous quarter), mainly driven by commercial property prices, it added.
EIOPA stated: “Liquidity risks are showing a decreasing trend, driven by positive developments in IORPs’ derivative positions. Within reserve and funding risks, the financial position of defined benefit IORPs remained robust in the third quarter of last year.”
As for ESG-related risks, the data showed they remain stable at a medium level. The median share of IORPs’ investments in green bonds over total corporate bonds continued increasing, standing at 8.0% in the third quarter of 2024 (from 7.3% in the previous quarter).
Looking forward, evolving dynamics in environmental agreements are making it more challenging to mitigate risks and to ensure consistent progress toward long-term sustainability goals, it said.
The dashboard also noted that digitalisation and cyber risks are unchanged, with the supervisory assessment of these risks levelling off in the fourth quarter of 2024, following a year of increased trends driven by ongoing geopolitical tensions and related uncertainty.
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