Dividend Update7 Apr 2020 13:00
Some insurers are wrapping themselves in the flag, while others are likely to want to burn theirs. The likes of Allianz in Germany and Legal & General in the UK are ignoring guidance from European watchdogs to curb dividends, and instead relying on softer messages from their national regulators. Investors may need to get used to greater divergence even after the crisis.
The statement was hardly ambiguous. On April 2 the European Insurance and Occupational Pensions Authority called on the region’s insurers to scrap dividends and staff bonuses due to the “level of uncertainty on the depth, magnitude and duration” of the coronavirus pandemic. EIOPA is an advisory body, so its proposals need to be implemented by national bodies. The French and Dutch watchdogs backed the message, but their German counterpart BaFin stated a blanket payout ban was unnecessary. The Bank of England merely repeated its previous caution on conserving capital.
National protection only goes so far. London-listed Aviva , for example, has most of its operations in the UK but also underwrites insurance in France. It needs regulators in each country to approve dividend payments from subsidiaries. Although local watchdogs have previously shied away from blocking such payments, a severe downturn may lead them to impose higher capital requirements.
Insurers may need to get used to different approaches from regulators and governments, as countries try to claw back some of the fiscal largesse they have had to dole out during lockdowns, or to help struggling consumers. French insurers have already been tapped for 200 million euros to support a solidarity fund. Higher corporate tax rates could follow. And regulators are calling on insurers to be generous when paying out business interruption policies or setting prices. Countries with higher debt loads or whose economies were more severely affected by the crisis, say Italy or France, are more likely to take a tough line.
Such unpredictability makes investors’ jobs harder. After Legal & General said it would pay its 2019 dividend, its shares rose 20% on Monday, retracing nearly a third of the loss since March, when investors began bracing for a dividend cut. Allianz saw a similar bounce. Shares in France’s AXA , which delayed its shareholder meeting by two months to negotiate with regulators, have underperformed. One crisis legacy may be a bigger premium on location.
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