Deutsche Bank has issued an upbeat note on the European insurance sector at the start of 2018, raising price targets for a swathe of UK names including Admiral Group PLC (LON:ADM), esure Group PLC (LON:ESUR), Legal & General Group PLC (LON:LGEN), Prudential PLC (LON:PRU), St James’s Place PLC (LON:STJ), and RSA Insurance Group PLC (LON:RSA).
In a note to clients, the German bank’s analysts said: “Strong balance sheets provide underpin; rising yields offer optionality.”
They added: “DB's strategists are generally cautious on the year ahead, but insurers nonetheless look reasonably positioned – cushioned against market weakness by strong balance sheets and on PEs that are well within the long-term trading range.”
The analysts concluded: “Overall, we feel the sector can modestly outperform in 2018, particularly if bond yields rise (as DB expects) – though given our cautious top-down view, our preference is for higher-quality/safer stocks.”
They noted that many of the higher-quality insurance stocks performed well in 2017, and selectively they see this momentum continuing, highlighting Prudential.
The analysts also analysed the downside in UK insurers from UK political risk, concluding that for most stocks the impact of a hard Brexit, for instance, is manageable.
They said that, in this regard, the December rally in UK insurers looks justified, while Aviva PLC (LON:AV.) and - to a lesser extent - L&G still look oversold.
In contrast, the analysts downgraded their rating for Phoenix Group Holdings PLC (LON:PHNX) to ‘hold’ from ‘buy’, primarily reflecting their perception that “the market for UK closed book acquisitions has become more competitive, implying less potential accretion on future deals.”