EU Regulators Push for Stricter Capital Rules on Insurers' Crypto Holdings

European insurance regulators are considering a tough new requirement that would force insurers to fully back their crypto holdings with an equal amount of capital.

European insurance regulators are pushing for stricter capital rules on insurers' crypto holdings, aiming to mitigate the risks posed by the volatility of digital assets and ensure financial stability.

The European Insurance and Occupational Pensions Authority (EIOPA) has proposed several options for regulating insurers' crypto exposure in a report submitted to the European Commission.

The regulator strongly supports the most aggressive approach, which would require firms to assume that crypto investments could lose their entire value. This is in contrast to traditional assets, such as stocks or real estate, which face lower capital requirements.

Cryptocurrencies would carry a full 100% capital charge under this framework. EIOPA defended this position by highlighting the extreme price swings seen in the market.

Historical data from showed that major cryptocurrencies, like Bitcoin and Ether, have suffered massive losses, dropping by over 80% and 90%, respectively.

Due to this unpredictability, EIOPA believes that even an 80% capital requirement may not be sufficient to protect insurers from potential losses.

While crypto-related insurance investments remain a tiny fraction of the sector, at 0.0068% of total industry exposure, certain regions would be more affected than others.

Luxembourg and Sweden hold the largest share of these investments, making up 69% and 21% of reported crypto exposures, respectively. Smaller holdings are found in Ireland, Denmark, and Liechtenstein, where insurers have some exposure through investment funds.

EIOPA emphasized that these stricter rules would not create significant financial burdens for policyholders.

Instead, the regulator sees the measure as an essential safeguard against future risks, especially if digital assets gain a more prominent role in the insurance industry.

The European Commission will now review the proposal and decide whether to implement the tougher capital requirements.