Broker snap: Credit Suisse upbeat about life insurance sector

15th Jan 2014 10:21

Credit Suisse has upgraded its rating for Standard Life from 'neutral' to 'outperform' as part of its review into the European insurance sector.The bank said that insurers' valuations have largely recovered to more "normal levels" after two years of strong sector performance on receding macro concerns."However, with valuations and in particular yields remaining reasonable against broader equity markets and a likely favourable macro backdrop (modestly rising yields, positive equity markets and strengthening US$), we see reasonable prospects that the sector can achieve a third positive year of outperformance with further re-rating and yield overcoming relatively lacklustre earnings growth," Credit Suisse said.For 2014, the bank said that its key preferences are for more "life-orientated" insurers or conglomerate businesses, but caution is needed in the property and casualty (P&C) sub-sector due to a softening pricing cycle in many markets."With much of the rest of the sector trading at relatively fuller valuations and likely to see relatively limited earnings momentum as a result of yields remaining low and the P&C cycle coming to a peak, we see groups with greater exposure to unit-linked life business and those able to deliver improvement through restructuring as better placed to perform."As such, it has named Prudential ('outperform') as its top pick in the life insurance sector and said it remains positive towards Aviva ('outperform').At the same time, the bank has reduced its recommendations for Direct Line and Resolution from 'neutral' to 'underperform'. It also reiterated its 'underperform' rating for RSA due to the weakness of its balance sheet.BC