The European Insurance and Occupational Pensions Authority (EIOPA) published today a Supervisory Statement that provides initial guidance to supervisors on the treatment of insurers’ foreseeable dividends. The aim of this guidance is to promote greater supervisory convergence, addressing the various market approaches currently used by insurers to deduct foreseeable dividends from their own funds.
European (re)insurers and groups are required to deduct foreseeable dividends, distribution and charges (together ‘foreseeable dividends’) from their own funds as they no longer meet the criteria of permanence and availability and lack the loss absorbing capacity that characterises own funds items. Dividends become foreseeable at the latest when they are declared or approved by the administrative, management or supervisory body (AMSB), or any other person effectively running the undertaking.
Although Commission Implementing Regulation (EU) 2023/894 on supervisory reporting instructs (re)insurers and groups to deduct their annual foreseeable dividend in full, EIOPA acknowledges that, over time, various approaches have emerged to deduct foreseeable dividends from own funds. These include the annual full deduction approach, the quarterly accrued deduction approach and the approach where foreseeable dividends are deducted after AMSB approval.
Supervisory expectations
EIOPA is currently reviewing Commission Implementing Regulation (EU) 2023/894 to reflect the changes stemming from the Solvency II review and to consider other changes relevant for supervisory purposes, including the reduction of the reporting burden. Therefore, this Supervisory Statement aims to provide initial guidance to supervisory authorities on the supervision of foreseeable dividends with a view to enhancing supervisory convergence and achieving a level playing field.
Specifically, EIOPA expects supervisory authorities not to prioritise supervisory actions in case an undertaking or group uses the quarterly accrued approach for the deduction of foreseeable dividends. That said, when undertakings or groups operate in a stable and predictable environment, or if there is a history of fixed dividends, EIOPA considers that the annual full deduction method remains a feasible option. The deduction of dividends after the formal approval of the AMSB is considered by EIOPA as a feasible option only if there are objective difficulties hindering the estimation of foreseeable dividends.