Insurers’ Pause of Dividends Likely Shows Caution, Rather Than Credit Risks: S&P

Some global regulators are advising insurers to suspend dividend payments in response to the COVID-19 pandemic. If insurers do, they won’t have to worry about their credit quality, S&P Global Ratings said in a recent report.

“Insurers’ decision to curb or suspend dividends, bonuses, and other discretionary capital distributions doesn’t always indicate constrained capital or cash,” S&P Global Ratings credit analyst Dennis Sugrue said in prepared remarks. “We believe it points to the uncertainty regarding the COVID-19 pandemic and the hefty costs that could materialize as a result.”

S&P said that “various regulators and supervisors” in Europe, as well as in Mexico, are cautioning insurers to be prudent about discretionary capital distributions such as dividends. Their particular worry: such actions could harm their capital or liquidity situations.

If insurers are concerned, S&P is saying not to worry.

“We do not consider the recent wave of insurers electing to skip upcoming dividend payments as a sign of systemic capital weakness across the industry and do not consider this a trigger for rating actions,” the ratings agency said.

At the same time, S&P admitted that the capital and liquidity problems combined with suspended dividends could be problematic.

“We acknowledge that deterioration in an insurer’s capital or liquidity position, alongside suspended dividends, could have rating implications,” S&P said. “We are actively engaging with insurers to understand the implications of COVID-19 on their capital positions.”

S&P noted that the global COVID-19 situation remains uncertain, particularly about the rate of spread and when the pandemic will peak. Right now, some governments are predicting a pandemic peak by midyear, something that S&P said it is using as a basis for assessing the economic and credit implications for the industry regarding the pandemic.

S&P Global Ratings’ full report is titled “Insurers’ Dividend Pause Amid COVID-19 Concerns Likely Indicates Caution, Not Credit Risks.”

Source: S&P Global Ratings

This article first was published in Insurance Journal’s sister publication, Carrier Management.

Related:

• Hiscox Withdraws 2020 Financial Guidance, Cancels Dividend Payment on COVID Crisis
• Growing Number of UK Insurers Cancel Dividends Amid COVID-19 Concerns
• European Watchdog Urges Re/insurers to Suspend Dividends During Pandemic
• Australia Regulator Urges Insurers, Banks to Defer Dividends Amid Coronavirus Crisis
• Munich Re Withdraws 2020 Profit Guidance on COVID-19 Uncertainties

Topics Carriers