IVASS: updates on dividend recommendations and remuneration policies during the Covid-19 pandemic in the context of the ERSB recommendations of 27 May
On 30 July 2020, IVASS, in consideration of the developments of the global pandemic of Covid-19 and the uncertainties that it entails, published some updates concerning recommendations on dividend distribution and remuneration policies for insurance companies.
On 30 March 2020, IVASS had sent a letter to insurance and reinsurance companies with registered offices in Italy, recommending that they adopt the utmost caution in the distribution of dividends and the payment of the variable component of remuneration to company management.
Furthermore, on 27 May 2020, the European Systemic Risk Board (ESRB) had published its recommendations on restrictions on the distribution of dividends during the Covid-19 crisis. ESRB highlighted the importance for financial institutions to maintain a sufficiently high level of capitalization in order to mitigate systemic risks caused by the pandemic and to better contribute to economic recovery. For this reason, insurance and reinsurance players were recommended not to distribute dividends or to undertake any other operations that would result in a reduction in their capitalization or, more generally, in their financial solvency. Also, when these recommendations were published, the Board pointed out that cash flow is likely to decline and that the industry is likely to be more exposed to losses due to a future long period of low interest rates and low returns.
IVASS, adopting the aforementioned recommendations issued by the ESRB, has therefore urged companies to refrain – at least until 1 January 2021 – from undertaking actions that would result in: (i) making a dividend distribution or giving an irrevocable commitment to make a dividend distribution; (ii) buy-back ordinary shares; (iii) creating an obligation to pay variable remuneration to the company management.
IVASS has also made it clear that compliance with these recommendations will be closely monitored.