Aviva plc, Prudential plc and Legal & General Group Plc: Insure Your Portfolio Against Troubled Times

The big UK life companies easily held the fort amid the investment volatility of 2014.

Aviva (LSE: AV) (NYSE: AV.US), Prudential (LSE: PRU) (NYSE: PUK.US) and Legal & General Group (LSE: LGEN) all grew between 12% and 15% last year, against a drop of 3% on the FTSE 100.

And they have 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 most to prove. I bought it several years for its recovery potential, and while chief executive Mark Wilson has stopped the rot, he still 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 gone on 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.

Aviva’s yield 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.

Annuity Slump

Like L&G and the Pru, Aviva is also now facing Chancellor George Osborne’s shake-up in the UK pensions market in April, which has already triggered a 50% drop in annuity sales.

There are opportunities here as well as threats, however, and all three insurers will be battling to produce innovative income drawdown products to help customers work their new freedoms.

Pru Through And Through

The UK pensions overhaul shouldn’t 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 product everybody else thought was dead.

Even the emerging market slowdown hasn’t troubled it, as it wisely focuses on efficiency and profitability, rather than sheer volume.

A fully 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 100’s return.

I keep deciding the stock can’t keep climbing only for the share price to rise even higher, up 16% in the last three months alone.

With a decent 3.5% yield and trading at a forecast 14 times earnings, I won’t 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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Harvey Jones holds shares in Aviva and Prudential. 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.