Sector Spotlight: Life Insurance

In this week’s sector spotlight, I look at life insurance; are there any interesting opportunities in the life insurance sector for investors?

Article updated: 27 November 2020 2:00pm Author: Michael Baxter

The life insurance sector appeals typically to investors for its high yielding dividend stocks. It appears that life insurance is of particular interest to income investors.

That is not to say that there haven't been some good growth stories in this sector. Shares in St James's Place, Legal & General and Prudential have all done pretty well over the long term and since each company debuted on the stock market. 

There are some big dividend payers in this sector; the question that investors need to ask themselves is how sustainable are these dividends?

To help, I have taken a look at revenue and profit growth over the last five years for all the companies I have looked at, as well as balance sheet strength. 

Of course, revenue and profit growth, or indeed share price growth, in the past is not a reliable guide to future growth.

But what we can do is look for clues and try and piece it together.

So, for seven companies in this sector, I have looked at share price performance this year, over five years and since stock market debut. I have looked at revenue and profit growth over five years and taken a look at balance sheets comparing assets with liabilities. Finally, I have looked at dividend yield and P/E.

Let's take a look at my findings: 

Aviva 

Aviva is the UK's largest insurance company, and is often popular among investors for its dividend. But the yield has been hit hard this year. There is more than one reason for this, but there are three key variables that can affect a company like Aviva in the long-run. There is its revenue for insurance policies it writes. There is the size of its payouts. And there is the return on the assets it buys to protect the money it receives from premiums. The Covid-19 crisis has adversely affected all three. As a result, the dividend has been slashed. The new (ish) chief executive Amanda Blanc wants the business to focus on a smaller number of markets. Recently she said: "We are at the early stages of exploring our options for those businesses. They are complex, and it is going to take time to reach a conclusion."

The company says it expects dividends to grow by low to mid-single digits over time.

Ms Blanc says: "We definitely recognise the importance of the dividend to shareholders." Then again, next years dividend is pencilled in at 21p — that still represents a decent yield.

Share price 323.5p
2020 high 424p
2020 low 211p
Five year high (2018) 543p
All time high (1998) 1,227p
Change last 12 months -20%
Change last five years -37%
Change since 1995 -36%
Market cap £m 12,706
Yield % 2.94
P/E 5
Revenue growth since 2015 42.5%
Pre-tax profits growth since 2015 234.1%
Total assets/total liabilities 1.0%
Current assets/total liabilities 0.1%
Current assets/current liabilities N/A
net assets £m  18685

Chesnara 

Chesnara is engaged in the management of Life and Pension policies in the UK, Sweden and the Netherlands. The group initially consisted of Countrywide Assured, a closed Life and Pensions book demerged from Countrywide plc, a large estate agency group.

In a recent interview, Chief Executive John Deane said: "The solvency of the group has held up well (during the Covid crisis) which has enabled us to continue our dividend strategy without compromising the financial stability of the business." 

These words must come as music to the ears of investors, because the dividend yield is at decidedly tempting levels. It may be worth noting that profits have roughly doubled over the last five years.

Share price 266.5p
2020 high 338.5p
2020 low 215p
Five year high (2018) 417p
All time high (2018) 417p
Change last 12 months -9%
Change last five years -19%
Change since 2004 147%
Market cap £m 400
Yield % 7.99%
P/E 5
Revenue growth since 2015 133.0%
Total assets/total liabilities 123.3%
Current assets/current liabilities 1.1%
net assets £m  475

Hansard Global 

Dividend yield is high at Hansard Global – exceptionally high, but then again, both revenue and profits have roughly halved over the last five years, and the balance sheet doesn't look so healthy. All this begs the question: how sustainable are the dividends?

Share price 37.2p
2020 high 48p
2020 low 24p
Five year high (2016) 143p
All time high (2018) 417p
Change last 12 months -87%
Change last five years -89%
Change since 2006 -88%
Market cap £m 51
Yield % 11.96
P/E 12
Revenue growth since 2015 -54.8%
Pre-tax profits growth since 2015 -44%
Total assets/total liabilities 1.0%
net assets £m  25.9

Legal & General 

One of the more established life insurance companies; it was a pioneer of low-cost tracker funds.

There are a lot of boxes ticked here: good dividend yield, and strong growth in both profits and revenue over the last five years.

Profits for this year are expected to be at a similar level to last year, and dividends will not be changed from 2019. Some saw this as a slightly disappointing update, but given the turmoil created by the virus, even matching last year's performance was an achievement.

The company expects low to mid-single-digit growth in dividends from next year onwards. 

Share price 257.2p
2020 high 318p
2020 low 138.6p
Five year high (2020) 318p
All time high (2020) 318p
Change last 12 months -9%
Change last five years -6%
Change since 1995 635%
Market cap £m 15,347
Yield % 6.83
P/E 8
Revenue growth since 2015 140.5%
Pre-tax profits growth since 2015 52.5%
Total assets/total liabilities 1.0%
net assets £m 9422

Phoenix Group 

The purpose of FTSE250 Phoenix Group is to decommission closed life funds 'safely, innovatively and profitably' - improving returns for customers and delivering value for its shareholders. A fund is defined as 'closed' if no new policies are being sold. The Group has £68.5bn of assets under management and serves more than six million policyholders. It has two core segments: life assurance (Phoenix Life) and asset management (Ignis Asset Management), which together employ around 1,200 people across the UK and Channel Islands.

Phoenix Group acquired Standard Life and Aberdeen's investment business two years ago.

The company has been subject to considerable press speculation of late concerning talk that it is looking at offers to buy its European business — Phoenix Europe. It recently confirmed that it is indeed considering offers.

Share price 772.4p
2020 high 803p
2020 low 468p
Five year high (2020) 803p
All time high (2020) 803p
Change last 12 months 5%
Change last five years 33%
Change since 2009 62%
Market cap £m 7,718
Yield % 6.06
P/E 89
Revenue growth since 2015 347.7%
Pre-tax profits growth since 2015 84.3%
Total assets/total liabilities 1.0%
net assets £m  5593

Prudential 

One of the UK's largest life insurers, Prudential has operations around the world in the UK, US and Asia. As well as providing financial services under its name, the Pru also owns M&G Investments.

Before Covid, things were looking good indeed for Prudential — shares hit an all-time high in January this year after quadrupling in price over the previous decade.

But the share price growth is not supported by revenue and profit growth — although revenue has increased over the last five years, profits have declined. This is reflected in apparently the high P/E ratio. 

Share price 1,204.5p
2020 high 1,506p
2020 low 710p
Five year high (2020) 1,506p
All time high (2020) 1,506p
Change last 12 months -13%
Change last five years 7%
Change since 1998 995%
Market cap £m 31,425
Yield % 3.1
P/E 52
Revenue growth since 2015 25%
Pre-tax profits growth since 2015 -33.3%
Total assets/total liabilities 1.0%
net assets £m  19,669.0

St James's Place 

The financial services holding company provides a range of financial and wealth management services through The St. James's Place Group. The company also offers life and health insurance contracts and pension schemes.

St James's Place has been receiving a lot of press attention of late, but not in a good way. An activist investor has called for radical change at the company, saying it has a bloated management structure. The investor: PrimeStone said that no less than 120 people at the company had "head of..." in their job title.

Share price 1,010p
2020 high 1,196p
2020 low 660p
Five year high (2018) 1270.5p
All time high (2018) 1,270.5p
Change last 12 months -10%
Change last five years 0%
Change since 1990 1,641%
Market cap £m 5,425
Yield % 3.81
P/E 37
Revenue growth since 2015 -21.8%
Pre-tax profits growth since 2015 307.5%
Total assets/total liabilities 1%
net assets £m  948

All prices are approximate figures taken from 27 November 2020.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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