Aviva, RSA, Direct Line and Hiscox have scrapped plans to pay dividends as the Bank of England’s Prudential Regulation Authority (PRA) puts pressure on insurers to protect policyholders, but some insurers have refused to halt payouts, reports Philip Smith
In the wake of the covid-19 crisis, a number of large insurers have caved in to the PRA’s call to halt dividend payments. However, despite huge pressure from the government and regulatory authorities a number of insurers have either remained quiet or pushed ahead with their original dividend payout plans.
Legal & General said it would pay its final dividend, worth about £750m to shareholders. Other insurers such as Phoenix, M&G, Admiral and Hastings, have so far said nothing about their payouts. Beazley has already paid its dividend.
In a statement, the regulator said: ‘We welcome the prudent decision from some insurance companies today to pause dividends given the uncertainties associated with Covid-19.’
‘As set out in our letter of 31 March, when insurers are considering whether or not to proceed with any dividend payments, their boards should pay close attention to the need to protect policyholders and maintain safety and soundness. Decisions regarding capital or significant risk management issues need to be informed by a range of scenarios, including very severe ones.’
In the letter, the PRA told insurers to remember the regulator’s existing expectation that when deciding on distributions, listed company boards should satisfy themselves that each distribution is prudent and consistent with their risk appetite.
‘In the current situation of high uncertainty, it is therefore critical that insurers manage their financial resources prudently in order both to ensure that they are able to meet the commitments they have made to policyholders in a way that is consistent with the expectations of the Financial Conduct Authority, and to enable them to continue to invest in the economy,’ the PRA said in the letter sent to insurers on 31 March 2020.’
The move comes after the PRA had made a similar request to banks to suspend dividend payments and share buybacks until the end of 2020.
Tesco dividend payout
At the same time, supermarket giant Tesco has defended its larger than expected final dividend, worth £635m to shareholders.
Dave Lewis, Tesco’s chief executive, said that companies needed to think about the needs of savers and pension funds.
As a major food retailer and as a designated essential retailer since the retail lockdown was first announced 23 March, Tesco is at the forefront of the fight against the coronavirus pandemic, ensuring that the food supply chain is maintained.
Report by Philip Smith
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