The Cyprus insurance sector remained resilient throughout 2025 despite a challenging risk environment, according to the Central Bank of Cyprus, which nevertheless warns that several structural vulnerabilities continue to warrant close monitoring.
In its latest Financial Stability Report, the Central Bank said domestic insurers maintained Solvency Capital Requirement (SCR) coverage ratios well above the minimum regulatory threshold of 100%, demonstrating strong capital buffers.
The sector's average solvency ratio stood at 279.8% at the end of 2025, significantly above the 220% median ratio recorded across the EU insurance sector.
According to the report, these capital reserves ensure insurers are able to continue supporting policyholders and the wider economy.
Liquidity weakened slightly during 2025, with the sector's liquidity ratio declining to 47.4% from 49.8% a year earlier. However, it remained above the EU median of around 46%.
Profitability also remained positive and broadly stable, with insurers maintaining a balance between premiums, claims and operating expenses.
While net claims ratios in both the life and non-life sectors deteriorated slightly compared with December 2024, they remained broadly aligned with previous years and did not create immediate pressure on insurers' financial positions.
A notable decline in the expense ratio within the non-life sector helped improve efficiency and offset potential profitability risks.
Structural vulnerabilities remain
Despite the positive overall picture, the Central Bank said the sector continues to face several structural vulnerabilities.
One of the main risks identified is the possibility of a sharp correction in international financial markets.
Although insurers' investment portfolios remain diversified and heavily weighted towards fixed-income assets, the report notes that significant exposure to bonds, equities and collective investment schemes continues to leave the sector vulnerable to market risk.
These assets accounted for 79% of total assets, excluding unit-linked investments, at the end of 2025.
The Central Bank also highlighted geopolitical risks.
While insurers' direct exposure to sensitive regions such as Russia, Ukraine and the Middle East remains relatively low, at 1.6% of corporate bond holdings and 1.8% of sovereign bond holdings, indirect risks arising from prolonged geopolitical tensions require ongoing monitoring.
The report further notes that insurers increased their exposure to corporate bonds, which carry higher risks, including credit deterioration and valuation adjustments during periods of market volatility.
Although exposure to sovereign bonds declined during the year, government debt still represents a significant share of portfolios.
As a result, concerns over the sustainability of global public debt remain a key vulnerability for the sector.
Exposure to property market risks
The report also points to insurers' continued exposure to the real estate market.
At the end of 2025, property investments accounted for 4.1% of total assets, excluding unit-linked investments. Including owner-occupied properties, that figure rises to 8%.
Because these assets are valued at current market prices, insurers remain exposed to the risk of falling property values.
According to the Central Bank, a correction in the property market could negatively affect both profitability and capital positions, with broader implications for insurers' financial strength.
Climate, cyber and concentration risks
The Central Bank said insurers must continue adapting to a landscape characterised by increasingly complex risks, particularly climate change and cybersecurity threats.
It noted that the growing frequency and severity of climate-related events require climate risks to be integrated across all aspects of insurers' operations, including risk assessment, investment management, counterparty evaluation and internal processes.
At the same time, strengthening operational resilience requires robust information technology and cybersecurity risk management, as cyber threats continue to increase in both frequency and sophistication.
The report also examined the impact of increased mergers and acquisitions activity in the insurance sector.
While consolidation is expected to strengthen efficiency, capital bases and economies of scale, the Central Bank warned that the dominant participation of large banking groups is increasing interconnectedness across the financial system.
According to the report, closer links between banks and insurers could amplify systemic vulnerabilities by creating channels through which financial shocks spread more rapidly across the broader financial sector.
