Aviva plc Is Still My Favourite Insurer

I’m taking a look around the various sectors of the FTSE 100 to see if I can pick a favourite from each, and today I’m turning my gaze to the insurance sector.

I was looking to add an insurer to the Fool’s Beginners’ Portfolio last year, and I narrowed my choice down to Aviva (LSE: AV) (NYSE: AV.US) or RSA Insurance (LSE: RSA). Both had seen their dividends stretched by the crunch years, and both had been forced to slash them.

I thought the share prices of both had been punished a little too hard, with Aviva shares possibly being the most oversold. So that’s what I went for — but do I still think Aviva is the pick of the sector?

Still the tops?

The short answer is yes, and that’s partly due to the accounting irregularities that have come to light at RSA’s operations in Ireland. That led to a capital shortfall of £200m and a pre-tax loss of £244m for the year ending December 2013, and caused a share price slump — the price fell by nearly 30% during 2013.

The problems did only affect Ireland, but we’ve since heard of a new rights issue, divestments and some high-level resignations. RSA is not the best in the sector right now!

prudentialNice, but not cheap

Prudential (LSE: PRU) (NYSE: PUK.US) is another I like the look of. With the exception of a fall in 2013, the Pru has kept its earnings growing throughout the recession, and we have two more years of growth forecast.

There have also been no problems with over-stretched dividends. By keeping them conservative, Prudential has maintained high cover, but that does mean relatively low yields — we saw 2.5% for the year just ended, with a fraction more than that expected this year.

And Prudential shares are more highly valued, too, with a forward P/E of 14 based on 2014 forecasts and the current price of 1,320p.

avivaAviva shares, priced at 503p, are on a P/E of 10.5 with a 3.3% dividend yield predicted, and the City is expecting to see sustainable growth in that dividend, too.

Bargain price

So Aviva is still my pick, based largely on the bad run of results being in the past, the rebased dividend now looking steady and poised for a return to growth, and the shares being oversold and too cheap.

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Alan does not own any shares mentioned in this article.