Source: reuters.com

British insurers canceled more than 1 billion pounds ($1.2 billion) of dividends on Wednesday, in moves welcomed by the Bank of England which had cautioned the sector about 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 planned payouts due to the uncertainty over the pandemic’s impact on their businesses, customers and the global economy. The cancellations represent another crushing blow to many pension funds and individual investors who have anchored their portfolios with insurance company stocks and who have come to rely on their historically secure income streams and growth.

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 maximize our capability to support customers under the terms of their respective policies.”

Regulators including Europe’s EIOPA and Britain’s Prudential Regulation Authority (PRA) had earlier urged insurers to show restraint on dividends as well as bonuses to senior staff. “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 Bank of England said in a statement.

Wednesday’s actions leave Legal&General (L&G) and Prudential as the last remaining UK sector heavyweights to resist pulling payouts. L&G said it was committed to its distribution and that its solvency position remained robust despite significant market volatility, while Prudential chief Mike Wells described his firm’s policy as “appropriate.”

But some analysts said it was possible others would follow their rivals’ lead. “We would not rule out other UK insurers following this precedent and see Beazley, St James’s Place, Prudential and M&G as all having higher levels of uncertainty at the current time,” JP Morgan analysts said, adding L&G had one of the highest levels of asset risk.