Prudential (Overweight (V), target price
783p) and Aviva (Overweight, target
price 710p) remain our favoured plays
􀀗 We see little motive for investors to
chase Friends Provident (Neutral (V),
target price 105p), except for
speculative reasons
􀀗 L&G (Overweight, target price 128p)
remains our preferred UK-focused play,
while Standard Life (Neutral (V), target
price 265p) offers only limited upside
In our recent sector report (European Insurance: Capital
raising? Dividend cuts? July 2008), our cash flow and
capital adequacy analysis led us to conclude that the sector’s
attractive dividend yield is credible and the sector is
adequately capitalised.
With respect to the UK life insurers, we remain concerned
about Friends Provident’s cash flow profile. We find it
difficult to believe it can meet its core cash generation target
without impeding new business growth in the timeframe its
strategic plan implies.
We are not concerned about operating cash flow coverage of
dividends for the other UK insurers. We believe that Aviva,
L&G and Standard Life can improve cash flows by further
reducing new business strain. Prudential already does well
on this account, and we were also surprised by the relatively
high cash generation of its Asia embedded value.
Friends Provident and Standard Life continue to rank poorly
on our S&P-type capital model compared with the European
sector, although regulatory solvency is not a concern.

目录

Investment summary 3
Cash flow generation 6
Capital adequacy 15
Aviva 17
Friends Provident 23
Legal & General 27
Prudential 32
Standard Life 38
Valuation methodology 43
Disclosure appendix 46
Disclaimer 51
Contents