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 aquick unfolding crisis with high uncertainty, the European Insurance

and Occupational Pensions Authority issued on 2nd April 2020 astatement requesting (re)in-

surers to suspend all discretionary dividend distributions and share buy backs aimed at remu-

nerating shareholders. Although, this should have apositive impact on the overall f‌inancial

stability of the sector, it could have anegative impact on insurers’ equity prices as aresponse

to the published statement. Hence, this article empirically investigates this potential eect

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 afew

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 arobust 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 abusiness continuity perspective but also from aforward-looking perspective, as

the sector might play akey 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 arobust 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