Britannic bins bonus and dividend payouts

Life insurer Britannic announced today that is scrapping its final 2002 dividend payment to its shareholders as well as deferring the annual bonus for its one million with-profit policyholders, in an effort to shore up its finances.

The firm was quick to point out that it expects to resume paying out bonuses to its policyholders in 2003, but declined to confirm whether it would also resume shareholder payouts next year; certainly, they admitted, there will be no interim dividend paid at the half-year stage.

Britannic is far from being the first life insurer to be forced to cut payouts. Standard Life, Abbey National, Prudential and Royal & SunAlliance, to name but a few of the major insurers, have also found it necessary to reduce or abolish the annual bonuses on their with-profits policies, causing misery for the hapless policyholders who were sold their policies as low-risk investments in the days before the stock market crash.

Unfortunately for Britannic, however, it has also been obliged to cut dividends for its shareholders due to the fact that the group's life assurance subsidiary, Britannic Assurance, has been unable to transfer enough funds to its parent company. This was a move successfully avoided by Legal & General last week, which cut the bonus payments and final payouts on its with-profit policies but actually increased it shareholder payouts, leading to shares in the company closing up by 5.3%. In contrast, when Britannic warned in January that it may have to take a "precautionary step" of payout scrapping due to the grim stock market condition, its share price tumbled almost 50% in a day.


In a statement, the company said: "The board is confident that solvency can be maintained at appreciably lower equity markets than current levels, but it is still too early to be more definitive regarding the likely level of dividend, if any, for 2003."

Operating profits of ?86m in the year to December 31, down from ?145m in 2001, were hit by a ?47m reduction in the return from shareholders retained capital and a one-off restructuring benefit of ?13m in 2001.

At the bottom line, pre-tax losses fell to ?297.1m in 2002 compared with ?181.1m the previous year. The tumbling stock market means Britannic Assurance's free-asset ratio - the level of assets remaining after liabilities and solvency margins have been met - is now 6.5% compared with 9.5% in June. It is a slight improvement on the 6% the insurer touched in January.