Bank of England backs COVID-19 pause in insurers’ dividends

Bank of England backs COVID-19 pause in insurers’ dividends

LONDON – A slew of British insurers pressed pause on hundreds of millions of pounds of dividends on Wednesday, in moves welcomed by the Bank of England, which had cautioned the sector to the risk of heavy costs from the spread of the coronavirus.

Aviva, Direct Line, RSA and Lloyds of London member Hiscox all said they would halt their 2019 investor payouts in view of the highly uncertain toll the Covid-19 pandemic would likely wreak on their businesses, customers and the global economy.

“This is a difficult decision, not least in terms of the initial impact it will have on shareholders,” RSA Chairman Martin Scicluna said.

“No company exists in a vacuum and at this time we judge it to be in the best long term interests of RSA to show forbearance on dividends and maximise our capability to support customers under the terms of their respective policies and play our part in industry initiatives to support relief efforts.”

Regulatory authorities including EIOPA and Britain’s Prudential Regulation Authority had earlier urged restraint on dividend payments by insurers to shareholders and the payment of bonuses to senior staff.

The moves come just over a week since the PRA asked all major UK banks to suspend dividends.

“When insurers are considering whether or not to proceed with any dividend payments, their boards should pay close attention to the need to protect policy holders and maintain safety and soundness,” the BoE said in a statement.

“Decisions regarding capital or significant risk management issues need to be informed by a range of scenarios, including very severe ones,” it added.

Aviva also said it would review all material company spending as part of plans to insulate its business from the economic fallout of the coronavirus pandemic.

The company said it remained “well capitalised with strong liquidity” and retention of the final dividend would boost group capital ratio by around 7% to approximately 182%.

Britain’s biggest motor insurer Direct Line said it would make no changes to staffing until at least the autumn as it weighs the damage the coronavirus shutdowns has had on the insurance industry.

Separately, Hiscox, which underwrites a range of risks including fine art, classic cars, kidnap and ransom, said it would also not propose an interim dividend payment for 2020, or conduct any share buyback.

Sector heavyweight Legal & General said last week it remained committed to its distribution.

(By Sinead Cruise and Muvija M)

(Additional reporting by David Milliken; Editing by Catherine Evans and Dhara Ranasinghe)

(c) Copyright Thomson Reuters 2020