EIOPA discretionary dividend suspension

EIOPA discretionary dividend suspension

On 28 October 2020, Italian Member of the European Parliament Marco Zanni of the Identity and Democracy Group, filed a written parliamentary question to the European Commission:

“On 17 March 2020, the European Insurance and Occupational Pensions Authority (EIOPA) stated that, in the context of COVID-19, recent stress tests showed the insurance sector to be well capitalised and able to withstand severe shocks. On 2 April 2020, the EIOPA issued another statement calling for the temporary suspension of all discretionary dividend distributions and share buybacks aimed at remunerating shareholders, regardless of the solvency and liquidity positions of individual companies.

The EU’s s Solvency II rules require a risk-based approach and already provide an automatic dividend suspension if the Solvency Capital Requirement (SCR) is breached or when the distributions would lead to non-compliance. Furthermore, national authorities must perform an individual assessment of each company’s capacity to pay dividends.

A general EU-wide suspension applied across jurisdictions could go against the risk-based approach of Solvency II. In addition, a blanket ban could reduce investor confidence in the insurance sector in the financial market.

1. What is the Commission’s interpretation of the EIOPA’s statement of 2 April 2020?

2. What does it intend to do to uphold the Solvency II rules and provide legal clarity for the sector?”

On 8 January 2021, Financial services, financial stability and Capital Markets Union Commissioner Mairead McGuinness, responded on behalf of the European Commission reporting:

“The European Insurance and Occupational Pensions Authority (EIOPA) issued a supervisory statement on discretionary distributions on 2 April 2020. The statement promoted prudent capital management and enhanced protection of policyholders in light of the exceptionally critical economic outlook triggered by the COVID-19 outbreak, while leaving sufficiently flexible margins of application to supervisors and insurers, and keeping the necessary supervisory dialogue as a way to assess and monitor individual situations.

EIOPA considered this statement to be necessary in light of the uncertainty around the impact of the COVID-19 crisis on insurers’ solvency position, and to promote convergence of Member States’ action in this respect.

In 2021, the Commission will conduct a comprehensive review of the Solvency II prudential rules, including the set of supervisory powers and preventive measures applicable before a formal breach of the Solvency Capital Requirement (SCR) occurs. Based on input received from the public consultation and on the forthcoming technical advice by EIOPA, the Commission intends to put forward a legislative proposal on the Solvency II review in the third quarter of 2021.”

Source: https://www.europarl.europa.eu/doceo/document/E-9-2020-005873_EN.html

Photo Credit : https://pixabay.com/illustrations/old-people-pensioners-pension-money-1553343/

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