RSA said yesterday that it would raise its 2011 dividend by a “prudent” 4 per cent due to tough market conditions, inviting unflattering comparisons with its rivals Allianz and Swiss Re.
RSA, which is Britain’s biggest commercial insurer, said it had been cautious because persistently low interest rates were weighing on its investment income, disappointing analysts who had forecast an increase of 5.2 per cent.
Investors have been scrutinising insurers’ 2011 dividends amid worries that weak investment returns, hefty natural disaster claims, and writedowns on European sovereign debt last year might sap their ability to pay out while keeping their capital reserves high enough.
But Germany’s Allianz, the European leader, kept its annual dividend unchanged even though a jump in catastrophe claims and hefty impairments on distressed Greek debt holdings halved its net profit.
The move, which analysts take as a sign of Allianz’s confidence in its future earnings potential, boosted the proportion of its 2011 profit that will be handed to shareholders – the so-called payout ratio – to over 80 per cent.
Separately, Swiss Re, the world’s second-biggest reinsurer, raised its dividend by 9 per cent after its 2011 profit trebled thanks to a release of cash set aside in prior years against claims that did not materialise.
RSA’s plan to keep its dividend in check will bring its payout ratio and dividend yield, historically among the highest in the European sector, more closely into line with its competitors.