Broker snap: Insurance consolidation 'inevitable'

1st Oct 2009 11:16

The life assurance sector has recovered strongly from its first quarter lows but there is still plenty of juice left in the major players, Panmure Gordon reckons.The broker has increased its target prices for five insurers: Prudential (to 732p from 585p), Standard Life (234p from 212p), St. James's Place (315p from 215p), Aviva (526p from 435p) and Legal & General (99p from 85p).All of the above bar Standard Life have 'buy' recommendations from the broker; Standard Life is rated a 'hold'.'Given the dramatic fall in 2008, Q1 2009 was largely based on fears of asset Armageddon, and we believe that the recovery along with the reintroduction of previously abandoned valuation methodologies will continue to drive share prices,' said Panmure Gordon analyst Barrie Cornes.There has been much talk of sector consolidation of late, with Clive Cowdery's investment vehicle Resolution said to be on the prowl. Panmure Gordon believes further consolidation in the sector is inevitable and would be a good thing.'Resolution's acquisition of Friends Provident has acted as a catalyst that should provide further upside at Legal & General [L&G]. L&G is an obvious candidate for corporate activity given its relative size, discount to EV [enterprise value], and the 'hidden' value of its asset management arm LGIM. Should an unwelcome approach be made to L&G, we would not rule out a non-life insurer acting as a potential white knight given the diversity benefits under Solvency II and L&G's management's comments concerning the merging of two UK life companies,' Cornes speculates.