With a regulatory revolution poised to deliver big dividends and share price growth… How to Get Insurers to Pay
Boring, boring, boring. It’s the view of the stock markets among a number of UK companies who argue that UK investors are tediously risk averse.
These companies are fleeing Britain, opting instead to list their shares in the United States, where there is more appetite for betting.
Software giant Arm and construction company CRH are among those who have made the trip across the Atlantic. Others should follow.
You may feel somewhat insulted by this assessment of your investor profile, believing that you too know how to be bold. But you can also sense that the focus on UK markets could provide opportunities, as the government is forced to act to restore Britannia’s image as cool, rather than boring and backward.
In particular, it might be time to bet on FTSE 100 insurers Aviva, Legal & General and Phoenix.
These giants – which focus on managing pensions and other savings – offer exceptional dividends, as well as growth prospects.
One of the main sources of this growth is expected to be an overhaul of rules and regulations that promises to inject new dynamism into UK markets.
Chancellor Jeremy Hunt’s Edinburgh reforms are set to boost the city’s appeal. Meanwhile, revisions to the Solvency II regime (a European directive covering the capital that insurers are required to hold) should also bring considerable benefits.
Insurers are excited about the redesign. Andy Briggs, boss of Phoenix Group, owner of Standard Life, is set to commit billions to Britain’s infrastructure.
Aviva Chief Executive Amanda Blanc also highlights the company’s willingness to invest billions in energy, housing and start-ups. Such projects would reinvigorate the economy. But they should also help insurers’ stock prices to thrive.
This optimism contrasts with the gloom that surrounded insurers in the wake of the mini-budget, the measures of which caused a sell-off in the gilt market. The rout sent alarm bells ringing among corporate defined-benefit pension plans that were being forced to meet margin calls on complex liability-driven investments (LDIs). Insurers are the biggest players in the £1 trillion LDI sector.
Today, however, this sad set of circumstances is considered a “black swan”, a once-in-a-lifetime event that may even prove to be another boon for insurers. Due to ILD angst, more CEOs could offload defined benefit plans on Aviva, Legal & General and Phoenix.
Investment: Aviva CEO Amanda Blanc
Phoenix is best known as the buyer of closed-end life insurance funds (where no new policies are sold), but it has done more bulk annuity business. Thanks to the potential for more profitable transfers, analysts consider the company a buy. The shares are trading at 617.8p. This week Legal & General – which William Meadon, director of investment trust JP Morgan Claverhouse, describes as “one of the best capitalized insurers in the UK” – reported an increase in block annuity business.
Job Curtis, director of the City of London investment trust, holder of the shares, calls it a ‘good company’ – high praise.
The shares are at 252p and the dividend yield is 7.3%. Boss Sir Nigel Wilson says there is ‘strong leeway’ for further payout increases, given its ‘strong synergy, strong capital backing and ambitious growth targets in each of its markets “.
Blanc also ushers in a new era at Aviva. This week the group unveiled a £300m share buyback program following a 35% rise in operating profit.
Acquiring shares in Aviva, Legal & General and Phoenix should allow you to support a regulatory revolution that is giving new impetus to Great Britain. You can also expand betting across the UK market and further enhance your earnings with ‘dividend hero’ trusts such as City of London, JP Morgan Claverhouse and Merchants. Unloved UK stocks are seen as attractive and cheap. This could be the start of a great adventure, with big dividends like a great company on the way.
