Shares in Aviva dropped 16 per cent yesterday after the FTSE 100 company slashed its final dividend 44 per cent, delivering another blow to investors in the insurance sector.

About £1.7 billion was wiped off the group’s market capitalisation on the move, which comes after a writedown on the agreed sale of Aviva’s US business triggered an annual £3 billion pre-tax loss.

Mark Wilson, little more than three months into the job as chief executive, said the “difficult decision” was necessary to help reduce levels of leverage at Aviva that were high relative to peers.

Shares fell 56p to 303p shortly after the London market opened, wiping out a big chunk of the 40 per cent gains made since the group embarked on a wide-ranging restructuring plan.

A disposal programme led by chairman John McFarlane to shore up Aviva’s capital position culminated in an agreement to sell the insurer’s American arm for less than half of its book value. Mr McFarlane said the disposal was “strategically imperative” but highlighted it had pushed up Aviva’s tangible leverage from 41 per cent to 50 per cent.

While Aviva did have enough liquidity to maintain its dividend, Mr Wilson said, such a move would not be prudent as he identified cashflow and debt reduction as the group’s two big priorities.

The group’s resources, he added, had “insufficient provision for unknown risks, our desire to pay down... debt, and to maintain prudent capital and liquidity levels”.

Aviva’s dividend cut comes after rival RSA cut its payout by a third, a decision that top shareholders warned could trigger disquiet over executive pay.

Aviva, whose former chief Andrew Moss quit last year after a rebellion over pay and performance, said yesterday it would not pay bonuses for top executives for 2012 or award them pay rises this year. – Copyright The Financial Times Limited 2013