UBS has updated its subsector preferences for traditional UK life insurers following the 2022 results – and Aviva PLC (LSE:AV.) now tops its list, followed by M&G PLC (LSE:MNG), Phoenix Group Holdings PLC (LSE:PHNX), and Legal & General PLC.
The Swiss investment bank sees Aviva as the best-placed in volatile markets due to its diversified business model, including both life and non-life insurance.
M&G is also liked, but in the absence of takeover and merger activity, there are no near-term catalysts, UBS reckons.
Phoenix would likely also be driven by M&A had it not depleted its financial firepower.
With no imminent acquisition candidate, there is no scope for a relative re-rating, investors were told in a note from the bank.
L&G has the highest subsector solvency ratio and looks best placed to take advantage of the UK bulk annuity market, but greater-than-expected dividend growth is unlikely before 2024, it added.
The potential subsector catalysts are M&A and enhanced capital returns, UBS said.
Delivery on capital returns is key for share performance, and Aviva has thus far served up a £300mln share buyback announcement, which UBS sees as sustainable.
M&G's high dividend yield of 11.4% is also attractive, but there are no near-term catalysts in the absence of M&A or an early liability management exercise.
The positivity from UBS wasn’t enough to prevent the stock from falling against a backdrop of a difficult market for financial stocks. The shares were down 3% at 402p.