EU Proposes Capital Rule Requiring Insurers to Fully Back Crypto Holdings

The European Union’s insurance watchdog is proposing a stringent new rule that would require insurers to maintain capital reserves equal to the full value of their cryptocurrency holdings.

The recommendation, made by the European Insurance and Occupational Pensions Authority (EIOPA) in a technical report to the European Commission on March 27, aims to shield policyholders from the volatility and risks associated with digital assets.

EIOPA described the measure as a necessary safeguard, citing the high volatility of cryptocurrencies like Bitcoin and Ether.

“EIOPA considers a 100% haircut in the standard formula prudent and appropriate for these assets,” the agency stated.

The proposed requirement is considerably tougher than capital standards for traditional assets—stocks, for example, require just a 39–49% capital charge, while real estate assets are backed by only 25%.

The recommendation fills a regulatory void between the EU’s Capital Requirements Regulation (CRR) and the forthcoming Markets in Crypto-Assets Regulation (MiCA), as current insurance laws lack clear directives for crypto exposure.

Circle submitted a short response to EIOPA's consultation on capital requirements for investments in crypto-assets in the EU

EIOPA’s current draft advice proposes a uniform 100% stress factor on all crypto-assets, a method that overlooks the varying risk profiles of different… pic.twitter.com/6mz54R0YcZ

EIOPA laid out four policy options for the Commission, ultimately endorsing the third: a full 100% stress level, indicating firms should prepare for a complete loss of value in crypto assets.

“An 80% stress to the value of crypto-asset exposures does not appear sufficiently prudent,” EIOPA explained.

By contrast, a 100% stress level assumes total loss and rules out the benefits of diversification.

Historical data supports this approach—Bitcoin and Ether have suffered price drops of 82% and 91%, respectively.

EIOPA argues that this proposal would not impose excessive burdens on insurers, noting that crypto exposure among European insurers is minimal—just €655 million or 0.0068% of total industry assets.

The regulator emphasized that the proposed rule would enhance policyholder protection without incurring material costs.

While crypto-related insurance activity is currently marginal, EIOPA acknowledged the growing interest in digital assets.

Luxembourg and Sweden lead the region in crypto exposure among insurers, accounting for 69% and 21%, respectively, based on Q4 2023 data. Ireland, Denmark, and Liechtenstein round out the top five.

Most of the crypto exposure, EIOPA noted, is held through investment funds such as exchange-traded funds (ETFs) and is linked to unit-linked insurance policies.

Still, the authority cautioned that broader adoption of crypto assets may, in the future, require a more nuanced regulatory framework.

A recent survey by Bitpanda revealed a widening gap between European banks and growing investor demand for crypto services.

While digital assets continue to gain traction across the continent, most traditional financial institutions remain slow to adapt.

The Bitpanda survey found that despite rising interest in cryptocurrencies like Bitcoin and Ethereum, only a small percentage of EU banks currently offer crypto-related services such as custody, trading, or staking.

Regulatory uncertainty and risk aversion remain key obstacles, even as the Markets in Crypto-Assets Regulation (MiCA) framework begins to offer more clarity.

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