The European Insurance and Occupational Pensions Authority (EIOPA) has proposed a new requirement: insurers must hold capital equal to the full value of their investments in crypto assets.
EIOPA aims to protect clients from the risks associated with the volatility of cryptocurrencies such as Bitcoin and Ethereum.
The proposal is presented in a technical report for the European Commission. Among the options presented, the regulator identified “full 100% coverage of crypto assets” as the best. The previous idea of 80% coverage was deemed insufficient, as EIOPA believes it does not account for the high risk of cryptocurrencies becoming completely worthless.
This requirement will be stricter than for other assets. For example, in the EU, the capital requirement for stocks and real estate is 39-49% and 25% respectively.
However, the share of crypto assets in the insurance and reinsurance market is currently extremely small. It amounts to about €655 million—only 0.0068% of all market operations in Europe. Most funds with crypto assets are linked to mutual investments.
The new requirement could impact insurers in Luxembourg and Sweden the most, where the majority of insurance investments in cryptocurrencies are concentrated—69% and 21% respectively.
Back in February 25, European Central Bank advisor Jürgen Schaaf stated that Bitcoin is not suitable for national government reserves.