EU Tells Insurers To Scrap Dividends, Buybacks In Crisis

By Najiyya Budaly
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Law360, London (April 3, 2020, 12:50 PM BST) -- Europe's insurance watchdog has urged the sector to suspend dividends and share buybacks during the coronavirus pandemic, putting a priority on preserving cash to protect policyholders and absorb cash losses.

The European Insurance and Occupational Pensions Authority has called on insurers to temporarily halt discretionary dividend payments and share buybacks that reward shareholders. Insurers should also halt variable pay policies such as cash bonuses, the watchdog said.

It is important that insurers preserve their capital holdings so they can pay out to policyholders and protect themselves during the outbreak, the EU authority said late Thursday. Insurers should review the suspension when the financial and economic damage caused by the spread of the COVID-19 disease becomes clearer.

"EIOPA considers that it is essential to ensure the access to and continuity of insurance services," the regulator said in a statement. "This objective requires that (re)insurers take all necessary steps to continue to ensure a robust level of' own funds' to be able to protect policyholders and absorb potential losses."

The insurance watchdog's guidance echoes that given by the European Central Bank. The ECB told banks in March not to pay out dividends until at least October to preserve capital so that they can continue lending during the pandemic.

Banks in Britain indicated this week that they would temporarily halt dividends after coming under pressure from the Bank of England.

EIOPA said Thursday that insurers and reinsurers must assess how much money they will need to hold to stay afloat, given the uncertainty of "the depth, magnitude and duration" of the outbreak on financial markets and the economy.

Insurance companies that believe they are legally required to pay out dividends or large bonuses must explain why to their national regulators, the EU authority added.

The Bank of England said on Friday that it backs EIOPA's guidance, adding that insurers should "pay close attention to the need to protect policyholders when making any decisions on the distribution of profits."

"We therefore expect firms to be prudent in deciding on dividend payments or variable remuneration in view of the elevated levels of uncertainty presented by coronavirus and its impact on the global economy," a BoE spokesperson said Friday.

--Additional reporting by Joanne Faulkner. Editing by Ed Harris.

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