Aviva (AV.) this week defended its decision to axe its final dividend for 2019, despite a barrage of criticism from retail shareholders at its remotely held annual meeting.
The insurer blindsided many investors on 8 April, when it canned the 21.4p per share payout, citing “the unprecedented challenges Covid-19 presents for businesses, households and customers, and the adverse and highly uncertain impact on the global economy”. A month earlier, with markets already in freefall, the board pointed to Aviva’s “operational momentum and strong financial fundamentals” in justifying a 3 per cent year on year increase in the final dividend.
“The decision to withdraw the recommendation to pay the 2019 final dividend to ordinary shareholders was reached by the board after long and serious deliberation,” said chairman Sir Adrian Montague. “Given the uncertainty caused by the virus, and the clear view of our regulators here and in other markets, we took the prudent course.”
That regulatory pressure included a veiled warning from the Bank of England in March and a call for widespread cuts to insurers’ dividends from the European watchdog, although some investors queried Aviva’s decision when peers including Legal & General (LGEN) and Standard Life Aberdeen (SLA) stuck to their payouts.
One shareholder accused the board of prioritising public relations over retail investors, while several others queried the logic for the apparent U-turn given the group’s solvency position and apparent operational resilience. As of 30 April, Aviva estimates the claims impact of Covid-19 on its general insurance division was just £160m net of reinsurance, while its solvency cover ratio was strong at 182 per cent. New business sales of life insurance policies are also up 28 per cent year on year.
Sir Adrian acknowledged that “the decision on the dividend has created a lot of unease and hostility, I think, among our shareholders”, but argued it would allow Aviva to emerge from the pandemic “in the strongest possible position". Ordinary dividends will be reviewed in the final quarter of 2020.
The meeting was also used as a platform to pass the chairmanship to non-executive director George Culmer, four months after Sir Adrian announced his intention to step down this year. The board also defended its decision to hold the annual meeting without live interaction, stating that its cloud platforms are not yet equipped to securely permit all shareholders to participate.