Three of the UK’s biggest insurance groups have said they will scrap planned dividends this year due to the coronavirus pandemic.
Aviva, Direct Line and RSA Group have all said they will not pay out to shareholders, following advice from regulators calling for insurers to preserve their cash due to the uncertainty.
On Friday, rival Legal & General said it would continue paying its dividend, despite the request not to.
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 effortsMartin Scicluna, RSA Insurance
Dividend payments have been a hot topic for companies, with arguments made that shareholders such as pension funds, need the cash and individual savers rely on dividend income.
Aviva said: “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.
“Regulatory authorities… have responded by publicly urging restraint on dividend payments by insurers to shareholders.
“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.”
The European Insurance and Occupational Pensions Authority said last Thursday that insurers and reinsurers should “temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders”.
It also put a temporary ban on insurance staff bonuses to ensure that insurers maintained their capital strength during the virus crisis.
But in the UK, the Prudential Regulation Authority (PRA), which is part of the Bank of England, said insurers should consider dividends “carefully”. By comparison, UK banks were told to ban dividends and bonuses.
The PRA has welcomed the prudent decision from some insurance companies today to pause dividends in response to Covid-19. https://t.co/4Zpn380lMD— Bank of England (@bankofengland) April 8, 2020
Following RSA, Aviva and Direct Line’s decision, the PRA said: “We welcome the prudent decision from some insurance companies today to pause dividends given the uncertainties associated with Covid-19.”
RSA Insurance said it recognised the industry needed to show it was ready to provide confidence to policyholders during the crisis.
To help customers, bosses said they were paying out £5 billion in gross claims costs to policyholders over coronavirus.
Chairman Martin Scicluna said: “This is a difficult decision, not least in terms of the initial impact it will have on shareholders… (but) 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.”
And at Direct Line, the company said it too had a strong position and enough cash.
But it added due to “heightened uncertainty in the macroeconomic environment, the board has decided it will no longer be recommending to shareholders the final dividend for the year ended 31 December 2019.”
A review will take place later this year, it added.
Direct Line also revealed travel claims are starting to fall – particularly in the motors division, due to drivers staying home.
Chief executive Penny James said: “Covid-19 presents an unprecedented global challenge. For DLG, whilst our capital position remains strong and at the upper end of our risk appetite range, we note the letter from the PRA and the guidance to preserve the Group’s strong balance sheet during this period of heightened uncertainty.
“It is too early to assess the impact of changes in customer behaviour that will arise given the broader consequences of Covid-19.”
Aviva also said it had launched a series of new initiatives to support customers and communities.
This includes free car breakdown cover for NHS workers, extending cover for businesses to account for extra home working and increased funding to the British Red Cross by £10 million.