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EU tells insurers to suspend dividends, avoid bonuses in pandemic

Insurers and reinsurers in the European Union should temporarily suspend dividends and share buybacks, the bloc’s insurance regulator has said. 

They should also consider postponing bonuses as well to ensure continuity in services during the coronavirus pandemic, the watchdog said.

The virus has led to lockdowns of economies and a rising number of insurance claims as travel and events are cancelled and business disrupted. 

The European Insurance and Occupational Pensions Authority (EIOPA) said it was essential to ensure insurers and reinsurers hold a “robust level” of reserves to protect policyholders and absorb potential losses. 

“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,” EIOPA said in a statement. 

“This prudent approach should also be applicable to the variable remuneration policies,” EIOPA said. 

Insurers should review their current remuneration policies, practices and rewards and ensure they reflect “prudent capital planning” and the current economic situation. 

“In such context, the variable part of remuneration policies should be set at a conservative level and should be considered for postponement,” EIOPA added. 

Insurers that consider themselves legally required to pay out dividends or large amounts of variable remuneration should explain the underlying reasons to their national regulator, it said. 

German insurer Allianz told Reuters it wanted to maintain both its dividend for 2019 and a share buyback worth 41.5 billion. 

“Allianz is in good shape,” its spokesman Holger Klotz said. 

German reinsurer Munich Re, which declined to comment on the EIOPA statement, announced this week it was scrapping a share buyback but keeping a €9.80 per share dividend, despite a profit warning. 

The suspensions should be reviewed as the financial and economic impact of the COVID-19 epidemic starts to become clearer, the watchdog added. 

The statement is similar to a letter from Bank of England Deputy Governor Sam Woods on Tuesday to insurer CEOs in Britain, asking them to pay close attention to the need to protect policyholders and remain sound before taking decisions on dividends or bonuses. 

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