Insurers axe dividends in latest blow to income

Insurers axe dividends in latest blow to income

A number of insurers were the latest to cull their dividend payments in a move set to limit the already shrinking pot of investments now providing an income to investors.

Aviva announced today (April 8) the board had withdrawn its recommendation to pay the 2019 final dividend to shareholders — set to be paid in June — in the wake of the challenges presented by the virus.

Hiscox, the RSA Group and Direct Line have also followed suit.

The moves come after the Bank of England wrote to banks and insurers on March 31, saying they should consider the dividends they intended to pay.

Sam Woods, deputy governor and chief executive of the PRA, said he expected insurers’ boards to pay "close attention" to the need to protect policyholders and support the "real economy" throughout the crisis when making decisions on dividend payments.

The PRA said today: "We welcome the prudent decision from some insurance companies today to pause dividends given the uncertainties associated with Covid-19."

Aviva said: “Regulatory authorities...have responded [to the crisis] by publicly urging restraint on dividend payments by insurers to shareholders.

“In light of the significant uncertainties presented by Covid-19, the board agrees with our regulators that it is prudent to suspend dividend payments at this time.”

The move has seen Aviva's share price tumble 9.2 per cent since markets opened this morning, while RSA and Direct Line have also seen a 3 and 6 per cent drop respectively.

It puts pressure on Legal & General, which last Friday committed to paying a second-half 2019 dividend worth some £754m, alongside Phoenix Group, Admiral and Prudential who are yet to confirm or change their dividend plans.

Insurers are the latest in a string of major companies to scrap their dividend payments, leaving income investors more than £19bn worse off since the start of this year.

Last week banks including HSBC and Barclays cancelled their dividends for the rest of the year while UK blue chips such as Taylor Wimpey and ITV have both done the same.

Russ Mould, AJ Bell investment director, said: “This combination of regulatory intervention and greater public awareness of the issue of dividend payments is a new, variable element for equity investors and income-seekers to address.

"Whatever the length of the Covid-19 lockdown and the duration of the subsequent economic downturn, this debate may be one of their longest-lasting effects."

Aviva reported it remained well capitalised with strong liquidity and that retaining the dividend would boost its capital ratio by about 7 per cent to 182 per cent.

It said: “It remains too early to quantify the impact of Covid-19 on claims expenses in our life and general insurance businesses, and the potential effect of capital markets and economic trends on our results.

“Given the change in the economic outlook, we are reviewing all material discretionary and project expenditure.”

The insurer said its staff continued to be paid as normal and that it does not intend to use the government funded scheme to furlough Aviva employees.