Top insurers bow to pressure and scrap £1.3bn shareholder payouts

Britain’s largest insurers suspended £1.3 billion of dividends on Wednesday after caving into pressure from regulators to curb shareholder payouts.

RSA, Direct Line, Hiscox and the UK’s biggest general insurer Aviva said they would suspend payments due later this year after the Bank of England urged them to be “prudent” with distributions.

The move, which was welcomed by the Bank, sent shares in the four companies falling up to 8%.

However the decision has left industry bellwether Legal & General isolated after it said on Friday it would plough on with a dividend.

M&G and Phoenix Group, two other large life insurers, have already committed to paying a dividend and their current position is unchanged.

Insurers have strong capital buffers and could easily meet the payouts so the suspension has been widely seen as a way to generate goodwill towards the sector and curry favour with regulators.

The sector was widely criticised for its unsympathetic handling of firms which may have had business interruption claims over coronavirus, with the Treasury Select Committee investigating.

Bank of America said “press and political attention for business interruption cover could have been a driver”.

The cut could lead to bad blood in the City, with some fund managers who rely on the steady stream of insurance divis set to take a dim view of the move.

Redburn analyst Charles Bendit said the suspensions “could have material long-term consequences for the make-up of its shareholder register,” as investors quit dividend-cutting stocks.

“Dividend income is critical for much of its retail and institutional shareholder base,” he said.

The insurance sector’s move today is in contrast to the banks like Barclays, HSBC and Lloyds, which had to be explicitly told by regulators not pay dividends after gentle pressure failed.

Insurance is one of Britain’s key financial services, with three in four households having some form of insurance policy.