Aviva PLC (LSE:AV.) and M&G are Morgan Stanley (NYSE:MS)’s favoured UK insurance plays trading at “relatively attractive multiples.”
The investment bank was taking a look at the sector in the wake of the transition to reporting under the IFRS 17 accounting standard.
It explained the earnings revision has been around negative 2% which it sees as not material with the main impact felt by UK life insurers where earnings downgrades are material at more than 20%.
For life insurers, the key metric for MS is the movement in contractual service margin (CSM), especially organic CSM growth which is new business profit add interest accretion less release to P&L.
This reflects the underlying growth in the business and the range was minus 4% to plus 11% in recent results, the bank noted.
Morgan Stanley (NYSE:MS) said the sector is currently trading at a price-to-book value of 1.6x “which in our view is reasonably attractive.”
It rates Aviva and M&G as 'overweight'.