The Bank of England’s Prudential Regulation Authority arm sent a letter last week to request that insurers remain prudent in their approach to dividends, and the European Insurance and Occupational Pensions Authority later urged insurers to temporarily suspend all discretionary dividend distributions until the economic impact of the Covid-19 pandemic is better understood.

Insurers have scrapped their dividends due to uncertainty surrounding the full impact of Covid-19

According to AJ Bell, dividend cuts from Aviva, RSA, Direct Line and Hiscox add up to £1.3 billion.

The insurers have scrapped their dividends due to uncertainty surrounding the full impact of Covid-19. The idea is that they will look to resume dividends later in the year or when the situation becomes clearer.

Russ Mould, Investment Director at AJ Bell, said: “The issue does not appear to be the insurers’ ability to pay. All of the seven FTSE 100 firms appear well buttressed. There may be another reason for insurers to wish to toe the regulatory line, namely public perception. Paying out large amounts of cash to shareholders when tales of refusal to pay out those hit (yet again) by floods or whose livelihood has been destroyed by the lockdown is not necessarily a good look.

“By contrast, it is a good look for regulators and politicians to take a tough line even if, with plenty of justification, the insurance industry can say it did not need the taxpayer bail-outs that the banks hoovered up during the great financial crisis of 2007-09.”

The Bank of England said in a statement: “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.”