Life and general insurance giant Aviva (LSE: AV) looks attractive right now. The shares are down from recent highs, dragged down in line with general market weakness, no doubt, and now the firm’s valuation seems compelling.

Growing well

Today’s 463p share price means Aviva trades on a forward price-to-earnings (P/E) ratio of just under 10 for 2016, which seems undemanding. Taken with City analysts’ estimates of a 17% uplift in earnings in 2016 and 10% in 2017, the picture becomes more intriguing. On top of that, the firm expects to pay a dividend yield in excess of 5%, and forward earnings should cover the payout almost twice.

In Aviva we have a company that generates around half its sales in the UK and a big operation covering France, Holland and Poland. In August, the chief executive said: “After three years of turnaround we are now moving to a different phase of delivery. We have improved the balance sheet, simplified the Group and we are now transforming our business.” 

Indeed, Aviva seems to be firing on all cylinders. My only reservation is that insurance firms tend to have a big investment arm that makes their trading outcomes reliant on general financial market movements. Aviva is a cyclical firm for sure, but I wonder if the current valuation and immediate prospects of the firm make it worth switching from an investment in Admiral Group (LSE: ADM).

Dividend hike

Admiral’s full year results came out on Thursday and the shares shot up around 8%. A 16% hike in the dividend and earnings-per-share up 4% worked wonders. However, it might not have turned out that way, according to the firm’s chief executive, who said: “I would describe 2015 as: the year of the uncut diamond. When the year started, many people thought it would turn out to be a lump of coal. But no, 2015 was no lumpy coal year.”

Admiral specialises in providing low-cost car insurance for young drivers, people living in cities and those driving high-performance cars. That sounds like a cut-throat business to me, so if I held the shares I’d be constantly wondering whether the next year’s trading would turn up coal or diamonds.


Investors have enjoyed a good run with the shares. Since the beginning of 2012, they’re up around 130%. At today’s 1,898p share price, the firm trades on a forward P/E rating of just over 18 for 2016, which is racy compared to Aviva’s valuation. Meanwhile, City analysts forecast a 1% uplift in earnings during 2016 followed by 8% in 2017 — growth rates below Aviva’s. There’s a 5.2% forward dividend yield on offer, albeit covered just once by forward earnings.

Admiral’s share price chart shows that today’s level is back up to a peak achieved at the start of 2011, which, coupled with the firm’s high-looking valuation, makes we wonder whether investors have become carried away by momentum.

Overall, Admiral’s business seems less diversified than Aviva’s. The share price strength at Admiral contrasts with recent weakness at Aviva to produce divergent valuations. On top of that, Aviva’s immediate prospects seem more compelling.

If I held Admiral, one course of action could be to sell into today's share price surge and reinvest the proceeds in Aviva. However, I could also invest outside the insurance industry, such as in the firms covered in this package of investment research compiled by our top investment analysts at The Motley Fool.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.