European insurance companies are scrambling to react to contradictory messages from supervisors on dividends, with France seeking to stop payouts while regulators in the UK and Germany take a more flexible stance.
On Thursday evening Eiopa, the EU’s insurance regulator, urged insurers to stop dividends, bonuses and share buybacks during the coronavirus crisis. It said they 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”.
But while Eiopa has an umbrella role overseeing the sector, the primary regulators are in individual countries and the messages from them have been mixed.
German financial watchdog BaFin said that it did not think a blanket dividend ban on insurance companies was merited at the moment.
“The individual situation of insurance companies needs to be taken into account,” said BaFin executive director Frank Grund. “We are in a close dialogue with the companies and expect a compelling explanation if they want to pay out dividends.”
Insurers are seen by investors as a major source of investment income, and so far few of them have cut their payouts.
Germany-based insurers Allianz and Talanx have said that they plan to go ahead with their dividends. Earlier this week Munich Re suspended its €1bn share buyback but said it would still pay a dividend.
Meanwhile the French regulator, the ACPR, has taken a much tougher line. In a statement on Friday it said that preserving capital should be the insurers’ priority, and that they should stop paying dividends until October 1.
Paris-based Axa has pushed back its annual meeting by two months until the end of June to “allow time for discussion with the European, French and other insurance regulators.”
UK-based insurers are also working out their response after the Prudential Regulation Authority wrote to them this week and said that they should manage their financial resources prudently but stopped short of an outright ban on dividends.
Most UK insurers proposed dividends alongside their annual results in February and March. Saga this week suspended its dividend but none of the UK’s FTSE 100 insurers have taken a similar decision so far.
In a statement on Friday, Legal & General said that it had “given careful consideration” to the PRA’s letter, and decided to go ahead with its dividend payment. The company said that it recognised “the importance of dividend income to many institutional and retail shareholders, particularly in the current environment”.
“The logical arguments to pay dividends are strong,” said Gordon Aitken, an analyst at RBC Capital Markets. Most insurers that he covers, he said, “have the means to pay the dividend in terms of capital”.
But he added: “Individual insurers are not being told what to do but this social pressure may well make it very difficult for an insurer to distribute even if its balance sheet is robust and its business is unaffected.”
Get alerts on Insurance when a new story is published