In accordance with its habit to upload links to EIOPA publications relating to the aligned policy of European supervisors in light of the current coronavirus crisis, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) on 2 April 2020 published a note in which it referred to EIOPA’s statement of the same date on dividend distribution and variable remuneration policies in the context of COVID-19.
Already on 17 March 2020, EIOPA asked insurers to follow prudent dividend and other distribution policies, including variable remuneration to preserve their capital position in balance with the protection of the insured. Now that the possibly severe economic impact of the coronavirus crisis becomes increasingly discernible, EIOPA has dedicated its latest statement exclusively to the issue of distribution policies and chosen a stronger language. Against the current background of uncertainty, it urges that (re)insurers temporarily suspend all discretionary dividend distributions and share buy backs aimed at remunerating shareholders. This suspension should be reviewed once the financial and economic impact of the crisis starts to become clearer. Bonuses should also be set at a conservative level and should be considered for postponement. From (re)insurers that consider themselves legally required to pay-out dividends or large amounts of variable remuneration, EIOPA requests an explanation of the underlying reasons to their National Competent Authority.
However, a prohibition to pay out dividends or bonuses would need to be covered by the applicable local laws. As for the German legal framework, such a measure if taken by BaFin would need to be suitable, proportionate and required. Whether this is the case needs to be assessed on an individual basis. Therefore, BaFin which had previously already recommended that financial institutions should refrain from share buy backs and carefully consider distributions, specifies now that it currently does not consider a general prohibition of distribution measures for (re)insurers and pension funds to be imperative. The individual situation of the insurer and in particular its risk-bearing capacity as well as any risks that may arise from the current crisis should be appropriately taken into account. BaFin emphasizes the need of a close dialogue with the industry and, similarly to EIOPA’s approach, expects a convincing justification if a (re)insurer or pension fund wish to pay out dividends.