Broker snap: Credit Suisse downgrades Legal and General

7th Sep 2012 10:21

Credit Suisse has downgraded its rating for Legal & General as part of its review of the UK life insurance sector.For the sector as a whole, first-half results met or beat consensus forecasts across most key metrics, the broker said on Friday morning. Credit Suisse said: "Top-line growth softened in the UK ahead of RDR [Retail Distribution Review] and auto-enrolment, Europe-exposed insurers saw pressure on profit and new business while low interest rates constrained returns on shareholder net worth. However, for those insurers with structural and strategic stability such as Prudential, L&G and Standard Life, execution remained strong and underlying trends in operating profits remained healthily positive."In 2012 so far, UK life insurers have outperform their European counterparts due to their lower direct exposure to Europe and limited guarantee risk in an environment of low interest rates, the broker said."While further re-rating may now be harder to deliver, we expect the relatively defensive balance sheets and resilient growth of the UK insurers to remain appealing in the near- to mid-term, with the valuation premium to European peers likely to be sustained."Among the growth-oriented insurers with higher price-to-earnings multiples, the broker said it prefers Prudential ('outperform') and St James's Place ('neutral') over Standard Life ('underperform') and Old Mutual ('underperform').Among the value-oriented companies, L&G has been downgraded from 'outperform' to 'neutral' due to "modest valuation upside potential" and remains 'neutral' on Resolution, saying that positive earnings catalysts appear some way off.As for Aviva ('outperform'), the broker stays positive, expecting execution on strategic plans to be supportive to sentiment.BC