The European Insurance and Occupational Pensions Authority (EIOPA), part of the European System of Financial Supervision, has urged all re/insurers to temporarily suspend all discretionary dividend distributions and share buybacks in light of the spreading coronavirus outbreak.
The EIOPA has stressed the importance of ensuring continued access to and continuity of insurance services during these challenging and uncertain times.
In order to be able to operate sufficiently and effectively, performing its role as a risk transfer mechanism for both individuals and businesses, the EIOPA says that insurers and reinsurers must take “all necessary steps to continue to ensure a robust level of own funds to be able to protect policyholders and absorb potential losses.”
In light of the current crisis, the EIOPA advised previously that re/insurers need to ensure that their capital position remains sufficient. Now, the organisation has gone further and has called on market participants to make sure their assessment of the overall solvency needs accounts for the uncertainty, depth, magnitude and duration of the impacts of the virus outbreak.
“Against this background of uncertainty, EIOPA urges that at the current juncture (re)insurers temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders. This suspension should be reviewed as the financial and economic impact of the COVID-19 starts to become clearer,” says the EIOPA.
The entity urges that this approach is adopted by all consolidated re/insurance groups, adding that it should also be applicable to the variable remuneration policies.
These are very uncertain times for insurers and reinsurers, and while some analysts have suggested that losses in some lines will be limited and that overall, the insurance impacts from the COVID-19 pandemic is expected to be manageable, only time will tell just how damaging the financial impact is for the industry.
