UK insurers Aviva, RSA, Direct Line and Hiscox have scrapped plans to pay dividends, bowing to pressure from regulators as the coronavirus pandemic hits the economy and financial markets.
The move risks upsetting shareholders for whom dividends are one of the chief attractions of insurance companies.
However, not all of Britain’s biggest insurers have yielded to the pressure from the UK’s Prudential Regulation Authority, which last week stopped short of banning dividends but urged chief executives to “maintain safety and soundness” when considering payouts.
Following that intervention, Legal & General said late last week it was planning to push ahead with its final dividend, which will distribute about £750m to shareholders. Other big insurers, including Phoenix, M&G, Admiral and Hastings, have so far said nothing about their payouts since their annual results. Beazley has already paid its dividend.
The decision to suspend the payouts was driven both by regulatory pressure as well as a desire to avoid a backlash from the public, according to people familiar with the matter.
Last week Eiopa, the EU’s insurance regulator, urged insurers not to pay dividends so that they could protect policyholders and absorb potential losses.
Insurers are acutely aware that the industry’s reputation has suffered during the pandemic as they have told many customers that losses caused by the crisis are not covered by their policies.
In a brief statement on Wednesday, the PRA said: “We welcome the prudent decision from some insurance companies today to pause dividends given the uncertainties associated with Covid-19.”
The PRA has been in touch with insurers since the letter was sent to chief executives last week, according to a person familiar with the regulator. “The different firms have different business models so each firm has to look at how their business can cope with a variety of scenarios . . . they are looking at their own positions and own models and what will work for them,” this person said.
The insurers are due to hold a meeting with the Financial Conduct Authority, the other main UK financial regulator, on Wednesday afternoon to discuss their response to the crisis.
Until now very few of the UK insurers had changed their dividend plans because of the coronavirus crisis.
Shares in three of the four insurers that pulled their dividends fell on Wednesday: Direct Line dropped 8 per cent drop, Aviva declined 7 per cent and RSA fell 4 per cent, although Hiscox rose slightly.
Martin Scicluna, chairman of RSA, said: “This is a difficult decision, not least in terms of the initial impact it will have on shareholders. The company has a strong capital base, but we think it is right and prudent . . . to take these steps now.”
The fallout from the coronavirus crisis is likely to hit both sides of the insurers’ balance sheets. Liabilities will rise as customers make claims on a range of policies, from travel to business interruption and event cancellation.
At the same time, the assets that the insurers hold as reserves to pay claims also risk further falls. Analysts have warned that a rise in corporate bond defaults would be particularly painful for the insurers.
NN Group of the Netherlands has suspended its dividend while Germany’s Allianz and Munich Re are going ahead. Axa has postponed its AGM in the hope that guidance from regulators becomes clearer over the next few months.
Alongside the dividend news, Aviva on Wednesday announced measures to assist customers, including extended cover for businesses whose employees are working from home, and payment plans for people in financial difficulty.
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