The European Insurance and Occupational Pensions Authority (EIOPA) has proposed new rules for insurers regarding crypto assets to mitigate risks for policyholders.
New EIOPA Proposals
EIOPA proposed a new standard for capital requirements for insurance companies holding crypto assets, requiring capital equal to the value of their crypto holdings. This proposal was made in a Technical Advice report to the European Commission on March 27. The new rule is stricter than for other asset classes, such as stocks and real estate.
Stress Levels and Justification
EIOPA outlined variations of stress levels: 80% and 100%. The third option — 100% — is deemed most appropriate given the high volatility of crypto assets. This is based on historical declines in Bitcoin and Ether prices, having fallen by 82% and 91%, respectively. The aim is to fully cover the risk of crypto assets despite diversification.
Impact on European Insurers
Insurance companies in Luxembourg and Sweden might be most affected by the new regulation, as they account for 69% and 21% of all crypto asset exposures in the region. EIOPA acknowledges that while these investments are currently insubstantial, the high risk associated with crypto assets demands strict regulation.
The new EIOPA proposals could significantly affect insurers in the EU, especially in countries with substantial crypto asset holdings. These measures reflect a commitment to reducing risks and protecting policyholders from potential losses.
