The big UK life insurance companies have been among the most successful stocks of 2014.
While the FTSE 100 is down 3% over the past 12 months, Aviva (LSE: AV) is up almost 12%.
Legal & General (LSE: LGEN) and Prudential (LSE: PRU) have both beaten that, rising around 15%.
And this is no flash in the pan. Over five years, L&G has returned 209%, the Pru 140%, and troubled Aviva a more modest 25%. That compares to FTSE 100 growth of just 21% over the same period.
Can their run of success continue?
The Annuity Angle
My first concern is that the life sector is exposed to troubled global stock markets, yet all three have been surprisingly resilient in recent days. Investors believe in this sector, and rightly so, given that all three have posted double-digit growth in net assets this year.
Aviva, L&G and the Pru have ballast against further market storms, through diverse lines such as corporate pensions, bulk annuity premiums, and personal and business protection.
Next year’s UK pension freedom overhaul was initially seen as a threat, instantly slashing annuity sales, but may ultimately prove the mother of all opportunities. Pensioners will be crying out for more innovative retirement products, and these three companies are nicely placed to produce them.
Pru Love
There is little sign of the emerging market slowdown casting a shadow over Prudential, which has the greatest exposure to Asia, where it recently posted a 15% rise in profits to £775m.
Prudential has put on so much muscle under Tidjane Thiam it’s hard to see it flagging now. I hold this stock but would I buy more at 16 times earnings and a relatively low 2.3% yield? Given recent growth and its expanding Asian empire, yes I would.
Legal Eagle
At 15.5 times earnings, L&G is cheaper than I would have expected, given its euphoric growth. Also its 3.9% yield is pretty decent. If you think the life sector has a big future, as cash-strapped governments offload public sector pensions and protection on to private individuals, then both Pru and L&G look like the ideal way to play it.
Viva Aviva
Aviva is still in the recovery phase, which explains why its recent performance lags L&G and the Pru. It has the shadow of its Friends Life merger hanging over its prospects, which adds an extra layer of risk in the current turbulent climate.
Aviva looks least likely of the three to make you rich in 2015. I hold Aviva, I wouldn’t buy.
