Standard Life PLC (LSE:SL.) shares may be due a pause after their strong run following the agreement to acquire Aegon UK, according to RBC Capital Markets.
The broker downgraded SL to 'sector perform' from 'outperform', although its price target was raised to 885p from 870p.
RBC said it continued to “like the Aegon UK acquisition strategically”, but noted that the deal has yet to complete and its full benefits will not be achieved until 2031.
Analysts noted that shares in the FTSE 100 group have re-rated to trade at a higher price-to-earnings multiple than diversified European insurers, despite carrying greater balance-sheet risk and being less diversified by product and geography.
The additional dividend yield offered over risk-free UK government bonds has also fallen to a multi-year low. RBC’s new price target implies a 6.5% dividend yield and a price-to-earnings multiple of 11 times for the 2027 financial year.
The downgrade comes as RBC turns more selective across European insurance following a strong sector rally.
Property and casualty insurers are expected to report robust first-half profits, helped by low natural catastrophe losses outside UK motor insurance. Rising inflation should also support premium growth, while higher bond yields improve investment returns.
RBC said it prefers large composite insurers, which combine life and general insurance and offer greater diversification. Aviva PLC (LSE:AV.) stands out because its valuation discount to rivals has widened, while AXA and Allianz also appear reasonably valued.
The broker is more cautious on reinsurers as pricing softens and earnings growth slows. It prefers Scor to Swiss Re, which it considers expensive relative to Munich Re.
Among UK-listed specialists, RBC favours Hiscox Ltd (LSE:HSX) over Lancashire Holdings Ltd (AIM:LRE, OTC:LCSHF) and Conduit Holdings Ltd (LSE:CRE), while remaining cautious on Admiral Group Plc (LSE:ADM) after its strong share-price performance.
UK life insurers should benefit from buoyant capital markets, particularly those with large asset-management operations such as Legal & General Group PLC (LSE:LGEN) and M&G PLC (LSE:MNG). However, competition and tighter margins in pension risk-transfer deals remain headwinds.
