What's Happening?
The European Insurance and Occupational Pensions Authority (EIOPA) has reported that German insurers hold €91.8 billion ($108 billion) in illiquid corporate bonds, making them the most exposed in Europe. This represents over 40% of their bond holdings
in unlisted notes. The report highlights the potential risks these insurers face, especially in the event of a market downturn where they might have to sell these assets below book value. The concentration of these investments in Germany, the Netherlands, and France accounts for 72% of the private credit exposure in Europe.
Why It's Important?
The significant exposure of German insurers to illiquid debt poses a risk to the stability of the financial sector, particularly if economic conditions worsen. This could lead to substantial financial losses and impact the broader European economy. The situation underscores the need for regulatory vigilance and potential adjustments in investment strategies to mitigate risks associated with illiquid assets. The findings may prompt insurers to reassess their portfolios and consider more diversified and liquid investment options.
