Dwindling dividend income – and with it the threat of dwindling capital – is promising yet another headache for insurers battling the economic crunch.

Ears pricked up last week as ANZ forecast a cut of around 25% in its 2009 dividend as tough conditions put the bite on capital.

KPMG analyst Andries Terblanche told insuranceNEWS.com.au this is just the beginning of a painful cycle for insurers.

“I think we have to wait for not only this corporate reporting season but the big year-end reporting season, around June, July, August, when most of the dividends flow through,” he said.

“It’s just another block in the tightening market conditions. You throw in then, of course, the storm exposures and the like, and I guess it’s another merciless step of a very challenging operating environment.”

Mr Terblanche says it’s important to remember that equities exposure levels vary from insurer to insurer.

“Of course, it all depends on where they have invested and how they have invested in their insurance technical reserves, because a number of them have switched from equities into fixed interest securities,” he said.