The impact of eiopa statement on insurers' dividends: evidence from equity market
Author | Petr Jakubik |
Profession | European Insurance and Occupational Pensions Authority (EIOPA) |
Pages | 104-114 |
THE IMPACT OF EIOPA STATEMENT
ON INSURERS’ DIVIDENDS:
EVIDENCE FROM EQUITY MARKET
Petr Jakubik111
ABSTRAC T
In an environment of aquick unfolding crisis with high uncertainty, the European Insurance
and Occupational Pensions Authority issued on 2nd April 2020 astatement requesting (re)in-
surers to suspend all discretionary dividend distributions and share buy backs aimed at remu-
nerating shareholders. Although, this should have apositive impact on the overall financial
stability of the sector, it could have anegative impact on insurers’ equity prices as aresponse
to the published statement. Hence, this article empirically investigates this potential eect
using an event study methodology. Although, negative drops were observed in some cases,
the obtained empirical results suggest that they were not statistically significant for the over-
all European insurers’ equity market when considering the event windows covering afew
days after the publication.
. INTRODUCTION
The insurance sector’s financial stability is essential in order to ensure the access to, and
continuity of, insurance services, safeguarding the ability of the industry to continue to
perform its role as risk transfer mechanism from citizens and businesses and its capacity
to mobilize savings and invest them in the real economy. This objective requires that
(re)insurers take all necessary steps to continue to ensure arobust level of own funds
to be able to meet promises to policyholders and absorb potential losses. In the wake
of the coronavirus outbreak, safeguarding the stability of the sector is relevant not only
from abusiness continuity perspective but also from aforward-looking perspective, as
the sector might play akey role in supporting the economic recovery via long-term in-
vestments after t he crisis. Towards this aim, the European I nsurance and Occupational
Pensions Authority (EIOPA) has urged insurance companies to halt dividends, buybacks
and bonuses. In its statement on Thursday 2nd April evening, EIOPA said that insurance
companies had to take all necessary steps to continue to ensure arobust level of own
funds to be able to protect policyholders and absorb potential losses. Against this back-
ground of uncertainty, EIO PA urged that at the current situation (re)insurers temporarily
suspend all discretionary dividend distributions and share buybacks aimed at remuner-
ating shareholders.
111 European Insurance and Occupational Pensions Authority (EI OPA).
EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY
104
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