April 11, 2025 – Brussels — Insurers in the European Union (EU) are expected to maintain limited exposure to crypto assets if a proposed 100% capital charge under Solvency II (S2) is implemented, according to a report by Fitch Ratings.
The European Insurance and Occupational Pensions Authority (EIOPA) has recommended this measure as part of a broader review of how crypto assets should be treated within the EU insurance regulatory framework. The proposal, requested by the European Commission, seeks to address the volatility and risks associated with cryptocurrencies.
Under the proposed changes, crypto assets would be subject to the maximum capital requirement under the S2 standard formula, which aims to account for price fluctuations, operational risks, and the lack of established regulatory oversight in the crypto market. This would apply to both direct and indirect exposure, including investments in crypto-related companies and assets held on insurers’ balance sheets.
Currently, crypto assets are not explicitly defined under existing S2 rules, and are treated as either intangible assets or Type 2 equities. However, EIOPA’s new approach would create a dedicated classification for crypto assets, aligning the insurance sector more closely with regulatory practices seen in banking and financial markets.
The proposed 100% charge would place crypto assets under the “intangibles” module of the S2 standard formula. As a result, hedging strategies would not be recognized, and the full gross position would be subject to the capital charge. Additionally, there would be no diversification benefits for crypto holdings, given EIOPA’s view that there is insufficient evidence to support such benefits.
Fitch Ratings estimates that even a small allocation to crypto assets—less than 1% of an insurer’s portfolio—could significantly impact an insurer’s Solvency II ratio, reducing it by a double-digit percentage depending on the type of assets replaced. For context, listed equities face charges ranging from 22% to 49%, adjusted for market conditions to mitigate cyclical effects, while property investments carry a 25% charge. Some private credit investments are subject to no market risk charge but do face counterparty credit risk.
Despite these potential regulations, direct holdings of crypto assets by EU insurers remain minimal. According to EIOPA, such exposure accounted for just 0.0068% of total sector assets at the end of 2023. This exposure is primarily concentrated in Luxembourg and Sweden, with insurers mainly holding crypto assets through collective investment schemes such as exchange-traded funds (ETFs).
EIOPA’s recommendations will be reviewed by the European Commission as part of its ongoing updates to Solvency II, which aims to reflect evolving financial markets and developments in digital finance.
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