European Insurers Increase Payouts, as Capital Recovers

By | February 19, 2010

Two leading European insurers on Thursday unveiled big dividend increases, confirming a sector-wide trend as the industry takes comfort from a steady recovery in its capital strength since the crisis.

AXA, Europe’s biggest insurer, raised its 2009 dividend by 38 percent to €0.55 ($0.744], while Swiss Re, the world’s second-biggest reinsurer, upped its payout tenfold to 1 Swiss franc per share (92.6 cents) [See IJ web site – https://www.insurancejournal.com/news/international/2010/02/18/107450.htm].

The move follows a better-than-expected dividend hike from rival Zurich Financial Services earlier this month and other insurers are expected to follow suit in the weeks ahead, encouraged by an easing of capital pressures since the end of the global banking meltdown of late 2008.

“I think it’s something you’ll continue to see across the sector from those companies that have strong balance sheets,” said Execution Noble analyst Joy Ferneyhough.

“When you look at the insurers relative to the banks in terms of dividend paying capability and desire, I think some of these yields are going to start looking very attractive to investors.”

STILL CAUTIOUS
By 1602 GMT, shares in AXA were down 0.5 percent at €15.635 ($21.14), underperforming a 0.45 percent increase in the Dow Jones index of European insurance stocks, after the company reported a 5 percent drop in underlying profit due to rising natural disaster claims. Swiss Re said it had returned to profitability last year and expressed confidence it could repay a costly convertible loan from U.S. investor Warren Buffett, sending its shares up 2.8 percent to €48.08 ($65.00).

European insurers including AXA, Swiss Re and Zurich cut their dividends last year to preserve capital amid worries that sliding asset values could force them to launch rights issues to underpin their solvency reserves.

A financial market recovery that took hold in mid-2009, coupled with the sector’s efforts to conserve cash, averted the need for capital raisings for balance sheet repair.

However, analysts said the sector remains cautious ahead of the introduction of tough new European Union capital rules, called Solvency II, in 2012, with all apart from Munich Re so far shunning more substantial capital repatriation programs such as share buybacks or special dividends.

Some insurers have chosen not to raise their shareholder payouts. Norway’s Storebrand on Wednesday froze its dividend for the second year running to focus on cost cuts and debt repayment.

Others, including Germany’s Allianz, are not expected to match the bumper dividend increases unveiled by Zurich and AXA due to weaker earnings growth, analysts said.

Insurers may also avoid big dividend increases so they can fund takeovers. Morgan Stanley analysts have estimated that insurance assets worth €50 billion ($67.6 billion) are potentially up for sale as bailed-out banks seek disposals to comply with European state aid rules.

However, lingering capital worries mean any takeover activity is likely to be small in scale, and targeted at high-growth emerging markets, the analysts wrote in a note last week.

(Additional reporting by Jason Rhodes in Zurich and Lionel Laurent in Paris; editing by Karen Foster)

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