EU regulator urges insurance companies to fully cover their cryptocurrency investments due to their high volatility
The European Union’s insurance authority has put forth a proposal that would require insurance companies to maintain capital equal to the value of their cryptocurrency holdings in order to reduce risks for policyholders.
The proposal, outlined in a Technical Advice report to the European Commission on March 27 by the European Insurance and Occupational Pensions Authority, is more stringent than current standards for other asset classes like stocks and real estate.
According to the authority, a 100% capital requirement for cryptocurrency holdings is necessary due to their inherent risks and high volatility.
The European Union’s regulatory framework for insurers currently lacks specific provisions on crypto assets, creating a regulatory gap that this proposal aims to address.
Four options have been presented for consideration by the European Commission, with option three, requiring a 100% stress level to crypto assets, being deemed the most suitable by EIOPA.
This strict approach is justified by the fact that cryptocurrencies like Bitcoin and Ether have experienced significant price drops in the past.
The proposal suggests that a 100% capital charge for crypto assets is necessary for adequate risk management, in contrast to lower capital charges for other traditional assets.
Insurers in Luxembourg and Sweden are expected to be most impacted by this proposal, as these countries have the highest exposure to cryptocurrency assets among insurance undertakings.
Despite the relatively small current share of crypto asset-related (re)insurance undertakings in Europe, EIOPA emphasizes the high risks associated with these investments and the need for stronger regulations to protect policyholders.
It is recognized that as the use of crypto assets expands in the future, a more nuanced approach may be required.
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