Insurance companies Hiscox, RSA, Aviva and Direct Line have this morning announced the suspension of their dividends after regulatory pressure from the Bank of England.
Sam Woods, deputy governor of the Bank’s Prudential Regulatory Authority wrote to chief executives of major insurers on 31 March asking them to “pay close attention to the need to protect policyholders and maintain safety and soundness” on any dividend or bonus decisions.
EU insurance regulator the European Insurance and Occupational Pensions Authority (EIOPA) also urged insurers last week not to pay dividends.
The PRA today said: “We welcome the prudent decision from some insurance companies today to pause dividends given the uncertainties associated with covid-19.”
On Friday, Legal & General confirmed it was going ahead with its £750m dividend payment to shareholders, despite the warning from the Bank.
The UK’s major banks HSBC, Barclays, RBS and Santander all pulled their dividends late last month after pressure from the Bank.
RSA’s shares fell 5.5 per cent, Direct Line’s shares fell nearly five per cent, Aviva’s shares fell 8.6 per cent and Hiscox’s share price fell less than one per cent.
RSA was due to pay a dividend of 15.6p per ordinary share for 2019 on 14 May.
Its chair Martin Scicluna 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, for the many businesses and people that we support as well as wider stakeholders, to take these steps now, and ensure that RSA is well placed to continue doing what we can to help through this crisis.”
Last month Aviva said it was pushing ahead with its dividend payment of dividend of 21.4p per ordinary shar e- due to be paid after its annual meeting next month.
However, Aviva said today: “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.”
It said it hoped to restart dividend payments by the fourth quarter,
Direct Line’s chief executive Penny James said: “We know that dividend income from DLG is important to our investors and through them the people who may look to that income to support their pensions and savings, but we have taken the prudent and difficult decision to withdraw the full year 2019 dividend.”
Hiscox said in a statement: “In order to help Hiscox serve the needs of businesses and households through the extraordinary challenges presented by covid-19, and with the support of our regulators, the Hiscox board has decided that the resolution to approve the 2019 final dividend of 29.6 cents per share, which was scheduled for payment on 10 June 2020, will no longer be put to shareholders.”
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “The announcement leaves UK peer Legal & General looking isolated after it announced last Friday that it intends to stick with its 2019 final dividend despite suggestions from the regulator that the cash might be better off used to strengthen the balance sheet ahead of the gathering storm.
“If it can sustain both the dividend and the balance sheet through the disruption the board will be praised for sticking by its shareholders in tough times, but Aviva’s move will raise questions about whether that’s achievable.”
Charles Bendit, capital Mmarkets analyst at Redburn, said: “Aviva’s decision [to withdraw its final 2019 from the AGM] shows prudence but could have material long-term consequences for the make-up of its shareholder register.
“Dividend income is critical for much of its retail and institutional shareholder base. Aviva’s decision contrasts with L&G’s, and it will be interesting to see whether L&G holds its nerve between now and the company’s AGM on 21 May.”