The Council of the Insurance Supervisory Agency held a meeting today, where, among other things, it considered the status of the Strict Recommendation from April this year, which recommended to insurance companies that, in order to preserve the stability of the insurance market and protect the insured and insurance beneficiaries, they should temporarily refrain from paying profit to shareholders in the form of dividends.
"In order to create optimal conditions and a financial basis for remediating the consequences of the crisis on the insurance market, the Agency maintains its strict recommendation to the managements of insurance companies to refrain from making decisions on the distribution of dividends to their shareholders until further notice, and the Agency will, after adopting the revised annual financial statements and of the business report for 2020 to reconsider the status of a strict recommendation," the announcement states.
The agency believes that the payment of dividends before the adoption of the aforementioned annual reports for this year would be a risky move that could negatively affect the financial position of companies in "an environment of significantly increased and insufficiently considered risks."
"Considering the further implementation of the Strict Recommendations, and in light of the high degree of uncertainty regarding the duration and effects of the crisis caused by the COVID-19 pandemic on the Montenegrin economy, and thus on the insurance market as an inseparable and significant part of the financial system, the Agency believes that insurance companies should continue to additionally strengthen their capital position, so that with a greater dose of financial security they could continue to fulfill their important function of assuming the risks of the economy and society," the Agency's statement added.
In addition to the above, in considering the further application of the Strict Recommendation, the Agency also took into account the comparative practice of the regulators of European countries, which left the measures and recommendations related to the temporary withholding of profit payments to shareholders still in force, as long as the financial and economic impacts of the COVID-19 pandemic XNUMX do not become more certain.
"In a situation of significantly increased market and credit risks, not only in the economy of Montenegro, the Agency is of the opinion that insurance companies should refrain from making decisions on the payment of dividends to their shareholders, especially until the moment of adoption of the revised annual financial statements and business reports for 2020 year at the shareholders' meetings, after which the companies in their full capacity could look at the financial possibilities for making such decisions, and the Agency could clearly look at the justification of extending this strict recommendation, bearing in mind the effects of the pandemic, i.e. the epidemic on the operations of Montenegrin companies in 2020 . year, as well as in the first quarter of 2021," the announcement concludes.
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