Resolution disappoints the City after it scraps £250m pay-out

By Perry Gourley
Published on 20/07/2012 09:49

Resolution, the consolidation vehicle set up by insurance industry veteran Clive Cowdery, saw its shares fall sharply yesterday after abandoning plans to pay £250 million back to investors due to “uncertainty”.

The group had previously said it intended to return the cash to shareholders in the first half of this year, following a similar payment last year.

Resolution said it would provide a further update along with its interim results on 15 August.

The firm added: “This decision is based on the estimated capital position of the group as at the end of June and follows careful consideration of the expected future capital requirements of Friends Life Group against a backdrop of heightened investment, economic and regulatory uncertainty.

“The group’s capital position remains robust. Friends Life Group had an estimated surplus of £1.9 billion as at 30 June. The company’s dividend policy remains unchanged.”

Mike Biggs, chairman of Resolution, added: “I understand that shareholders will be very disappointed that the board has concluded not to return a second £250m of capital but it would be inappropriate to do so against the backdrop of heightened investment, economic and regulatory uncertainty.”

Analyst Edward Broughton at brokerage Sanford Bernstein said Resolution’s decision was driven by regulatory pressure on the insurance sector to beef up its reserves amid faltering economic growth, and ahead of Europe’s tough Solvency II capital rules for insurers.

“We believe the UK regulator is strongly encouraging all UK life insurance companies to reserve conservatively given current macro-economic uncertainty and in anticipation of the future implementation of Solvency II,” he said.