The European Insurance and Occupational Pensions Authority (EIOPA) presented the proposal in a Technical Advice report to the European Commission on March 27. Unlike traditional asset classes such as stocks and real estate, which have lower capital requirements, crypto assets would need to be fully backed.

“EIOPA considers a 100% haircut in the standard formula prudent and appropriate for these assets in view of their inherent risks and high volatility,” the authority stated.

Why the 100% Requirement?

The 100% capital charge is based on the assumption that crypto prices could drop completely. EIOPA noted that Bitcoin (BTC) and Ether (ETH) have previously seen declines of 82% and 91%, respectively. This is significantly higher than the capital requirements for stocks (39%-49%) and real estate (25%), according to Commission Delegated Regulation 2015/35.

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EIOPA offered four options for the European Commission:

1. Make no changes.
2. Implement an 80% stress level for crypto holdings.
3. Implement a 100% stress level (EIOPA’s recommendation).
4. Broaden the approach to include risks of tokenized assets.

“An 80% stress to the value of crypto-asset exposures does not appear sufficiently prudent,” EIOPA stated, emphasizing the need for 100% backing.

Impact on Insurance Markets

The proposed regulation would mostly affect insurers in Luxembourg and Sweden, which account for 69% and 21% of all crypto-related insurance undertakings. Other impacted nations include Ireland (3.4%), Denmark (1.4%), and Liechtenstein (1.2%).

Most of these holdings are structured within funds, such as exchange-traded funds (ETFs), and held on behalf of unit-linked policyholders.

Future of Crypto in Insurance

Despite proposing a 100% capital requirement, EIOPA acknowledged that broader adoption of crypto assets may require a more differentiated approach in the future. As the sector evolves, further regulatory adjustments could be introduced.

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