The insurer Aviva (LSE: AV) certainly catches my eye as an investor. The well-established FTSE 100 insurer has fallen 28% in price over the past five years. Aviva shares currently yield 7.3%.
In the past five months, the shares have been climbing. They are up 17% since September.
So, ought I to add Aviva shares to the shopping list for my Stocks and Shares ISA in the coming month?
Assessing the investment case
Insurance is a market that has been around for centuries – and I think it will stick around for centuries more. In many cases, insurance is required by law or some other agreement. I therefore expect demand to stay high and prove fairly resilient even during tough times.
Such a market inevitably attracts a lot of companies keen to try their hand. Aviva is only one of many. But I think it has some specific advantages.
It has well-known brand names. A history stretching back centuries has not only burnished its reputation with customers but also helped the firm master the insurance business.
Over the past few years, Aviva has sold off some businesses and basically retrenched to its key markets, notably the UK. It made a loss in its last reported year (2022): after tax, the firm was £1.1bn in the red. But accounting rules mean it is difficult to try and value an insurer only by looking at its statutory earnings. I see this as a solid business with significant long-term earning potential.
The most recent interim dividend grew a handy 7.8%. I expect the full-year payout will show strong year-on-year growth too.
Some concerns I have
However, as any insurer worth their salt knows, one always needs to consider the unexpected.
The abundance of competition could help keep insurance premiums low, hurting profitability. That may seem counterintuitive given how many premiums have soared over recent years. But it is basic economics. In fact, many insurance markets globally have suffered large losses over the past several years.
Economic turbulence is another risk I see for Aviva shares. It can mean some policyholders shop around for a better deal. It also threatens to hurt returns in the insurer’s investment portfolio, which could be bad for profits.
On top of that, Aviva’s smaller and more concentrated footprint means it is more reliant than before on a few key markets. That could be bad or good, depending on how those markets perform.
I’d be happy to buy
As a long-term, buy-and-hold investor, I see a lot to like here. The industry is proven and resilient, Aviva has a proven business model, and there is a juicy dividend. That is never guaranteed and indeed Aviva cut the payout as recently as 2020.
Still, if I had spare money to invest, I would be happy to tuck some Aviva shares away in my ISA or SIPP next month with the intention of leaving them there for years to come.
