Would I buy FTSE 100 insurance company shares during a crisis like the Covid-19 pandemic? Am I mad to even think it? I might be, especially as I hold Aviva (LSE: AV) shares. They’re down more than 40% since the start of the crash. At least RSA Insurance (LSE: RSA) has done a bit better, though, with a share price fall of 35%.
We expect insurance shares to be hit during any kind of disaster, so any investment in the sector has to look at the long term. There’s a rule of thumb that suggests a minimum of five years’ time horizon when investing in shares in general. But for FTSE 100 insurers, I think I’d make that a minimum of a decade.
But we still need to keep out eye on the short-term news. At the very least, it helps us spot FTSE 100 shares that have fallen too far due to market overreaction. And we have some news from RSA, in the shape of a first-quarter update.
The firm’s “first quarter results were strong, continuing the momentum seen in 2019,” in the words of chief executive Stephen Hester. But with the period ending March, it’s too early for any Covid-19 impact to have had much effect. The same is true across the whole sector, so those Q1 figures won’t be representative of the full year.
FTSE 100 future?
Hester added that “RSA is resilient and determined to sustain strong and appropriate support for our customers in these testing times. We are also very conscious of our shareholder responsibilities, especially with regards to restarting dividend payments when it is prudent to do so.”
Institutional investors aren’t able to put any numbers on the potential damage yet. So they’ve done what they typically do in times of uncertainty — sell and run. And that, I reckon, gives private investors a great opportunity.
RSA is a company I’ve always admired (and I’ve owned its shares myself in the past). It also has at its helm someone I consider one of our best FTSE 100 bosses. Hester played a key role in the recovery of Royal Bank of Scotland, and I don’t think his contribution there has been properly recognised.
But let’s now turn to Aviva. This industry giant has had to suspend its dividend at the direction of the PRA, along with other FTSE 100 insurers. The dividend was, in my opinion, the best thing about Aviva. Due to the company’s profitability and strong balance sheet, I saw it pretty much as an uninterruptible income stream.
But the halting of the payments is surely only short-term. As my Motley Fool colleague Roland Head has reported, Aviva ended 2019 with a capital surplus of £12.6bn. And it had more than £500bn of assets under management.
The Covid-19 slump this year looks sure to send some big insurance losses in the direction of Aviva. And again, the uncertainty lies in the size and timescale of those losses. The longer the FTSE 100 crunch goes on, the more damage we’re likely to see.
But I’m convinced Aviva has the strength to come strongly out of the slump. I’d happily invest £1,000 in each of these today.
Alan Oscroft owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.