EIOPA’s IORP Risk Dashboard shows market and asset return risks as main concern

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The first Risk Dashboard on Institutions for occupational retirement provisions (IORPs) published yesterday by the European Insurance and Occupational Pensions Authority (EIOPA), has shown that market and asset return risks are the main concerns for occupational pension funds.

Based on individual occupational pensions regulatory reporting, EIOPA’s IORP Risk Dashboard summarises the main risks and vulnerabilities in the IORPs sector of the European Economic Area (EEA) for the different schemes, i.e. defined contributions (DC) and defined benefits (DB).

It includes a set of risk indicators covering traditional risk categories, such as market and credit risks, liquidity risks, reserve and funding risks, as well as emerging threats like ESG and cyber risks.

The risk dashboard was developed in cooperation with National Competent Authorities with the objective to systematically monitor and assess the risks and evolution thereof in the IORP sector from a macroprudential perspective, but also to analyse the potential vulnerabilities of IORPs’ financial position and their implication to financial stability at the EEA level.

The dashboard’s first edition showed that the IORPs’ exposure to market and asset return risks is currently at a high level, making this the most relevant risk category for the sector given the still high volatility in bond markets.

Macro risks are at a medium level – there are positive developments related to a reduction in forecasted inflation, partially offset by a GDP growth outlook that remains weak by historical standards, EIOPA stated.

Liquidity risks are at a medium level but show an increasing trend compared to the previous quarter, driven by developments in derivative positions. The net asset value of IORP’s derivative positions went further into negative territory due to the continued increase of interest rates in Q3-2023, the dashboard added.

All other risk categories are currently assessed at a medium level, with increases expected for credit risks as well as digitalisation and cyber risks over the next 12 months.