8th Apr 2020 09:23
(Alliance News) - Some of the UK's largest listed insurers, including RSA Insurance Group PLC and Aviva PLC, became the latest financial firms to withdraw dividends due the Covid-19 outbreak.
Last Thursday, the European Insurance & Occupational Pensions Authority called on insurers to "suspend all discretionary dividend distributions and share buy backs".
The UK Prudential Regulation Authority also last week wrote a letter requesting that insurance companies be prudent in their approach to dividends. The PRA also had leaned on UK banks to withhold dividends in order to retain money for lending, with which all complied.
In the FTSE 100, RSA and Aviva pulled their 2019 final payouts, as did 250-listed insurers Direct Line Insurance Group PLC and Hiscox Ltd.
Aviva said it "recognises the importance" of a cash dividend and will reconsider its payout arrangements in the fourth quarter of 2020.
"The board has taken this decision in the wake of the unprecedented challenges Covid-19 presents for businesses, households and customers, and the adverse and highly uncertain impact on the global economy," the company said.
Aviva affirmed it is "well capitalised with strong liquidity", adding that withdrawing the final dividend will increase its estimated capital ratio by about seven points to 182%.
"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," Aviva added.
RSA said it intends to resume making payouts "when prudent to do so". It previously had proposed a 15.6 pence final payout for 2019.
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."
RSA, scheduled to release a first-quarter update on May 7, said its solvency II coverage ratio was at 150% at the end of March, within its target range.
Direct Line noted the announcement from the European regulator and the PRA, and explained it will call off its final payout "in recognition of the regulatory guidance and heightened uncertainty".
Its solvency II coverage ratio stood at 176% at the end of March, within the targetted 140% and 180% range.
The company added that claims in most of its units, motor in particular, have fallen as more people are forced to stay at home due to lockdowns. In the travel business however, claims have risen, due to restrictions in international travelling.
Direct Line is scheduled to provide a first quarter update on May 6.
Hiscox noted the "extraordinary challenges" the Covid-19 outbreak brings and the business and home insurance provider pulled its 29.6 cents final dividend.
It did add that trading in the first two months of 2020 was ahead of expectations, but the virus outbreak since has cast fog over the rest of the year.
"As such, we are withdrawing all financial guidance for 2020 until there is more clarity. We remain confident in our ability to return to our normal 90% to 95% combined ratio target range for the Retail business in 2022," Hiscox said.
In London on Wednesday morning, Aviva shares were 9.0% lower at 242.70p each, the worst performer on the FTSE 100. RSA was down 3.0% at 391.10p.
Direct Line, down 6.9% at 271.30p, was the worst performer on the FTSE 250, but Hiscox was 1.2% higher at 944.40p.
The UK's major banks last Wednesday all confirmed the suspension of shareholder returns following the request from the PRA.
Putting out their own statements last week confirming the halting of returns, were lenders HSBC Holdings PLC, Barclays PLC, Royal Bank of Scotland Group PLC, Lloyds Banking Group PLC, and Standard Chartered PLC. All are members of the FTSE 100 index.
By Eric Cunha; [email protected]
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