A multitude of British insurers have canceled their dividends after the Bank of England warned for the second time that payments should be considered very carefully in light of the coronavirus crisis.
Aviva, Direct Line and Hiscox all said this morning that they would cancel distributions to shareholders – throwing a very unflattering light on Legal & General, the FTSE 100 insurer who announced last week that it would go before with a payment of £ 750 million.
The Bank of England wrote to banks and insurers on March 31 telling them to think carefully about their dividends. Today’s statement makes it very clear that he is not satisfied with the continued payments. It said:
We welcome the prudent decision by some insurance companies today to suspend dividends given the uncertainties associated with Covid-19.
As noted in our March 31 letter, when insurers are considering whether or not to pay dividends, their boards of directors should pay close attention to the need to protect policyholders and maintain security and solidity. Capital decisions or significant risk management issues should be based on a series of scenarios, including very serious scenarios.
Many insurers were not too affected by the crisis, particularly if their core business did not have to cover large payments to policyholders. However, continuing to pay hundreds of millions of pounds as the economy enters a deep recession is not a good idea. Watch out for insurance stocks today.
The FTSE 100 is expected to drop 1.9% at the start as some of the goodwill caused by the first signs of a slowdown in the spread of the virus in key regions is fading.
Markets do not seem to have been helped by reports that EU finance ministers are struggling to reach an agreement on sharing the financial pain of the pandemic response equally, by issuing joint bonds, called “coronabonds”.
Here is an excerpt from the BBC report this morning:
A teleconference between eurozone finance ministers continued for seven hours on Tuesday and is expected to continue until Wednesday morning after Italy refused to back down on its demands.
Yesterday, the Wall Street rally (which followed very strong gains earlier this week) waned last night, leaving the S&P 500 slightly behind. Asian equities were also significantly mixed this morning, as the Nikkei 225 in Japan rose sharply thanks to the government’s stimulus packages, but the blue chips in Shanghai have changed little.
- 10.45 am BST: auction of Italian bonds at 12 months
- 7:00 p.m. BST: Minutes of the meeting of the Federal Open Markets Committee of the Federal Reserve