Citigroup says ‘sell’ as dividend eats insurer’s reserves

Shares in Aviva took a pounding after a Citigroup analyst told clients that they should dump the UK's biggest insurer on concerns that its decision to pay a dividend will hit its capital strength, papers reported.

Aviva fell almost 14%, down 29.8p to 183.7p, after Andrew Crean cut his recommendation on Aviva from "hold" to "sell".

He said that Aviva's decision to pay out a 33p a share final dividend, at an estimated cost of about £500m, would erode its £2bn of capital reserves, despite the insurer's insistence that it is well capitalised.

“In our view, if the dividend policy is maintained, the balance sheet will not regenerate from future operating earnings," Mr Crean wrote in a note to clients.