The EU’s insurance regulator has urged insurance companies to halt dividends, buybacks and bonuses in the wake of the coronavirus outbreak.
The move will heap more pressure on insurers, which have so far largely decided to keep paying dividends.
On Tuesday, Munich Re said that it would halt buybacks but continue with its planned dividend. On Wednesday, shareholders in Zurich, which is not based in the EU, approved the company’s planned annual payout.
Big EU-based insurance companies including Allianz and Axa are due to pay their annual dividends next month.
In a statement on Thursday evening, Eiopa, the EU’s insurance and pensions regulator, said that insurance companies had to “take all necessary steps to continue to ensure a robust level of own funds to be able to protect policyholders and absorb potential losses”.
It added: “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.”
Eiopa’s statement goes much further than other insurance regulators have done. Earlier this week, the Bank of England took a tough line with the UK’s banks on dividends and bonuses, but a much softer stance on the insurers. It said only that insurance company boards should “satisfy themselves that each distribution is prudent and consistent with their risk appetite”.
The scale of insurance claims that will be caused by the coronavirus outbreak is still unclear. Insurers say that they will pay out on more than a dozen different lines of business, from travel and life insurance to directors’ and officers’ liability claims, but have declined to publicly put a figure on the potential claims.
Some in the industry privately say that the total bill could reach more than $50bn. Last year, the insurance industry paid out a total of $56bn for large natural and man-made catastrophes, according to Swiss Re, down from $93bn the previous year.
EU solvency rules insist that insurance companies must hold enough capital to be able to survive a 1 in 200-year event, and most insurers hold more capital than the regulatory minimum.
Shares in insurance companies have fallen sharply in recent weeks. As well as the potential for large claims, investors are worried about the impact of the economic slowdown on the investment portfolios that the insurers hold to pay claims. Although the insurers’ exposure to equities is relatively low, they have generally invested large amounts in corporate bonds.
Any move to cut dividends could hit their share prices further. Many investors own insurance companies largely for their payouts, given that the growth rates in the industry are low.
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