The big UK life companies easily held the fortamid the investment volatility of 2014.
And theyhave started 2015 strongly, rising around 7% so far. There is nothing like having a bit of insurance in your portfolio, especially today.
Aviva: The Wilson Years
Aviva has got mostto prove. I bought it several years for its recovery potential, and while chief executive Mark Wilson has stopped the rot, hestill has a long way to go.
Investors have also had to endure costly US write-downs, expensive weather-related insurance claims, and a 50% cut in the dividend.
Undaunted, Wilson has goneon the attack with its 5.95bn purchase of Friends Life, which offers good synergies among several product ranges.
I felt he had enough on his plate turning one insurer around, but it should save Aviva 225m a year if all goes to plan. Some 1,500 job cuts have already been announced. Cash flow could benefit to the tune of 600m.
Avivasyield disappoints at 2.8% but is at least sustainable, while its forecast price/earnings ratio of 10.7 suggests there is still some value left.
Like L&G and the Pru, Aviva is also now facing Chancellor George Osbornes shake-up in the UK pensions market in April, which has already triggereda 50% drop in annuity sales.
There are opportunities here as well as threats, however, and all three insurers will bebattling to produce innovative income drawdown products to help customers work their new freedoms.
Pru Through And Through
The UK pensions overhaulshouldnt trouble the Pru too much, given its global reach, and rapidly growing profits in the US and Asia.
Since I added the stock to my portfolio almost five years ago chief executive Tidjane Thiam has hit target after target. The Pru has even made a go of UK with-profits bonds, a producteverybody else thought was dead.
Even the emerging market slowdown hasnt troubled it, as it wisely focuses on efficiency and profitability, rather than sheer volume.
Afully valued forecast p/e of 15 times earnings and 2% yield suggests that the market respects the power of the Pru.
Legal & Generally Speaking
L&G has been the best performer of the three, returning a mighty 250% in the last five years, 10 times the FTSE 100s return.
I keep deciding the stockcant keep climbing only for the share price to riseeven higher, up 16% in the last three months alone.
Witha decent 3.5% yield and trading at a forecast 14 times earnings, I wont be betting against it again.
The big insurers have recovered from the financial crisis far better than the big banks, making this my favourite investment sector right now.
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