Investment: Aviva is star pickof life insurers as Prudential suffers growing pains

Can Asia's economies continue to thrive as the rest of the world stumbles? Debatable

Life insurers really ought to be a defensive investment, providing acceptable long-term capital growth and an attractive yield. Regardless of the current economic problems, demographics remain solidly in their favour. Britain and Europe are ageing. Asia is getting rich, but lacks much in the way of public life, health or pension provision.

So they should do well. But the short-term picture is clouded by a disturbing economic outlook and questionable management at some of the bigger companies.

Take Prudential. It has been very quiet, and no wonder after the spectacular mishandling of its bid for Asian insurer AIA, which cost its shareholders more than £400m in fees.

The institutional arrogance that disfigured the company for years and appeared to be ebbing under previous chief executive Mark Tucker has returned with a vengeance.

This is a real issue for investors, because it has led to a succession of missteps down the years, from being the biggest mis-seller of pensions by far through the poorly handled bid for American General through to AIA (which ironically hired Mr Tucker after it floated).

Prudential trades at 1.8 times the value of its in-force book of business, and offers a prospective yield of 3.9 per cent. Can Asia's economies continue to thrive as the rest of the world stumbles? Debatable. But even if they can, this column would avoid Prudential until its board grows up a bit.

The other big international conglomerate in the sector is Aviva. It is under a huge cloud because of its exposure to Europe. Investors have been fretting about its Italian operation and how that country defaulting on its debt would affect the company.

Even so, a look at its surplus capital over regulatory minimums suggests that it could actually handle quite a big haircut.

It is fair to say that the City does not have the greatest confidence in management, led by chief executive Andrew Moss, who turned down a £5bn bid proposal for the general insurance business last year. General insurance accounts for about a quarter of Aviva's business. The company is currently valued at just above £8bn. So in other words, Aviva could have received £5bn for a business currently on its books for notional £2bn.

The City won't tolerate that sort of mathematical oddity for long. Mr Moss needs to pep up the share price fast or he'll be out (or facing a bid). Hiring Trevor Matthews (ex Standard Life and Friends Provident) was a good move, though. The shares, trading at just 70 per cent of the business's book value, and offering a prospective yield of 8 per cent, are far too cheap. Buy.

Legal & General doesn't offer that kind of value. But then the City has confidence that it is a solid, well-run business which has a tendency to beat expectations. With plans to take its stock exchange index-tracking business overseas, where there is a huge growth opportunity, and a very good UK operation, there's not much to dislike. Its chief executive Tim Breedon leaves next year, which is unfortunate. But bank on L&G finding an acceptable successor. It is no screaming bargain at 1.18 times book value, but with a tasty (and growing) prospective yield of 5.6 per cent, L&G is a good buy.

Not so much Standard Life, which is slightly cheaper (1.15 times book) but yields better (6.7 per cent prospective). There have been problems with its flagship pensions offer and David Nish, chief executive, has still to prove that he's in the same league as predecessor Sandy Crombie. Still, we'd hold for now.

Old Mutual is flush after selling off its Nordic businesses at a very good price. A hodge-podge of South African life insurance, banking and other odds and ends, it is inexpensive (trading at about 80 per cent of book value) but there is a lot of work to be done in making this business look like a sensible investment. The prospective yield, 4 per cent, is poor. Not one for us.

St James's Place Capital looks expensive by any metric you'd care to use and offers a prospective yield of just 2.4 per cent. It is an oddity, majority owned by Lloyds Banking Group, and selling to wealthy individuals through an army of financial salesmen who have been pouring new business on to its books. SJPC regularly exceeds expectations but is probably fully priced, though its shares have fallen a bit recently.

Resolution, like Aviva, is technically undervalued. It trades on under 60 per cent of its book value and yields an impressive 7.7 per cent. Perhaps it is no wonder founder Clive Cowdery recently bought a big chunk of shares.

The trouble is, it is based in Guernsey and pays Mr Cowdery and friends a pretty penny for managing it through a contract that looks eccentric to say the least. Then there is the question of whether it has finished its acquisition spree or not. Who knows. If value's your thing, Aviva's a much better bet until a lot of questions about this company have been resolved.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
PROMOTED VIDEO
Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Life and Style
life

News
ScienceGallery: Otherwise known as 'the best damn photos of space you'll see till 2015'
Travel
travelWhy Japan's love hotels are thriving through an economic downturn
Life and Style
fashion

Bomber jacket worn by Mary Berry sells out within an hour

Life and Style
Alexander McQueen A/W 2014
fashionPolitics aside, tartan is on-trend again this season
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
Sport
Joel jumps over the board...and into a giant hole
footballFrom joy to despair in a matter of seconds
News
i100
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week