Aviva’s decision to cut the payout will come as a blow to shareholders, since investors say dividends are one of the main reasons to own shares in insurance companies
Aviva’s decision to cut the payout will come as a blow to shareholders, since investors say dividends are one of the main reasons to own shares in insurance companies © REUTERS

Aviva has announced a new dividend policy that will lead to it paying out almost a third less than it did before the Covid-19 crisis hit.

The insurance group said it was likely to pay out a total of 21p for 2020, rising in low to mid-single digits after that. Aviva paid out 30p for 2018 and had been on track to pay out 30.9p for 2019 before it changed its plans following regulatory pressure at the height of the first UK coronavirus outbreak in April. It ended up paying out 15.5p for 2019.

Investors have said dividends are one of the main reasons to own shares in insurance companies, and the decision to reduce the payout will come as a blow to many shareholders. Aviva has cut its dividend several times over the past two decades.

The latest dividend “is sustainable and resilient in times of stress, and is covered by the capital and cash generated from the core markets of the UK, Ireland and Canada”, the insurer said in a statement on Thursday.

Chief executive Amanda Blanc, who was appointed in July, has promised to focus the group on a smaller number of markets.

Column chart of Aviva's annual dividend payout (pence)

She has already sold businesses in Italy and Singapore, and the future of operations in places such as France and Poland is unclear.

“We are at the early stages of exploring our options for those businesses,” said Ms Blanc. “They are complex and it is going take time to reach a conclusion.”

She added that, as the company was focusing on a smaller number of markets, it had to change its dividend policy. “We definitely recognise the importance of the dividend to shareholders,” she said.

Aviva said that, once it had paid down some of its debt, it would return excess capital to shareholders if its solvency ratio — a measure of capital available as a proportion of the minimum required — was more than 180 per cent. The measure stood at 195 per cent at the end of September.

Citigroup analyst James Shuck estimated that disposals could raise a total of £6.6bn, which would allow about £3bn to be returned to shareholders.

Aviva also gave a trading update for the nine months to September. It said that new life insurance business sales in the UK and Ireland rose 40 per cent to £9.2bn because of large bulk annuity deals, in which Aviva takes on corporate pension schemes.

The insurer also cut its estimate of the cost of Covid-19 claims in its general insurance business from £165m to £100m. It said the reduction was due to “lower claims frequency during the third quarter reflecting reduced economic activity”.

Aviva’s shares fell 1 per cent on Thursday morning, and are down 23 per cent in the year to date.

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