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Can Aviva share price recover as UK insurers report earnings this week?

12:05, 9 August 2022

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Image of a car insurance claim being made
Aviva shares have lost some momentum of late and are almost unchanged on a year ago - Photo: Shutterstock.

UK insurance groups will go head-to-head this week. Aviva (AV.), Prudential (PRUl) and, Admiral Group (ADMI) will all report half-year results and investors are keen to see how inflation is affecting the cost of claims.

Aviva (AV.) shares have lost some momentum of late and are almost unchanged on a year ago.

“As a result, the shares are no higher than they were 30 years ago,” Russ Mould, AJ Bell Investment Director wrote in a note.

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Aviva Plc (AV.) share price chart 

Cost cutting

Chief executive Amanda Blanc is trying to fix that but has been faced with shareholder frustration – and some unpleasant behaviour – at the company’s Annual General Meeting in May.

“That is not the only pressure point, since activist investor Cevian Capital is still on the shareholder register and has been pushing Aviva (AV.) for even deeper cost cuts and greater cash returns,” Mould added.

This year, Aviva (AV.) has raised more than £7.5bn ($9bn) from the sale of businesses in Poland, Indonesia, France, Hong Kong, Singapore, Vietnam, Turkey, and Italy, as it focuses on the UK, Ireland, and Canada.

Investors will be keen for an update on its £385m purchase of its UK wealth management and financial business, Succession Wealth.

“Updates on the £4.75bn in cash returns already made, via a £1 billion buyback and a B share scheme, will also be welcomed, along with progress on Aviva’s plan to reduce what it calls ‘controllable costs’ by £400 million between 2018 and 2023,” Mould said.

Meanwhile, Aviva (AV.) increased its full-year dividend by 5% to 22.05p and that included a 5% increase in the first-half payment to 7.35p. Management has targeted a distribution of 31.5p a share for all of 2022, a 40% uplift on last year, and 33p for 2023.

 

Prudential

Prudential’s share price has been down 21% this year and on Thursday, when it releases its half-year results, investors will be hoping for some positive stock price moves.

It was announced in May that, Anil Wadhwani will take the helm at Prudential (PRUl). An ex-Citi banker and most recently head of Canadian insurer Manulife’s Asian business, Wadhwani is viewed by stock-watchers as a clear signal of Prudential’s determination to redouble its focus on Asian markets.

Mike Hamilton, a market analyst, and the founder of Tradetheeasyway.com, tells Capital.com: “On the fundamental levels I really like the fact they have disconnected from the US. Apart from Hong Kong, I think most parts of Asia are sheltered from many of the macro pressures we are seeing.”

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Russ Mould, investment director at AJ Bell, said Wadhwani's appointment could lay the groundwork for a dramatic break from the UK in the future.

But Coronavirus and the on-going border closure between Hong Kong and Mainland China have constrained sales for Prudential (PRUl).

“Uncertainty about the Asian business environment could have contributed to the recent fall in valuation,” Charlie Williams, Equity Research Assistant at Hargraves and Lansdown wrote in a note.

Williams stresses that profit margins on Prudential’s Life Insurance division will be at the front of investors’ minds.

“Prudential (PRUl) enjoys fixed premiums on its Health and Protection policies; however, rising inflation and interest rates may dent profit margins as premiums continue to remain fixed. Because of this, a close eye should be kept on how margins have changed and the impact it has had on profits,” Williams said.

Investors will also see how rising interest rates are benefiting the group's asset management division. With some Asian countries raising rates, which is helping savings and annuities for Prudential. The group’s results on Thursday will shed some more light on the affect this has had.

Prudential (PRUl) share price chart

Admiral Group

Admiral Group’s share price has been down 35% this year, and one of the key reasons is that inflation has caused motorists to cut back. Consultants EY are now warning that surging car price inflation will push insurers into a profits U-turn for 2022 and 2023.

Rodney Bonnard, UK insurance lead at EY said: “The profitability achieved during the pandemic is largely masking the underlying impact of inflation amid an increasingly soft market.”

Admiral Group ADMI share price chart

Can ADMI share price rebound and survive inflationary pressures?

Well, analysts believe that despite the cost spiral’s insurance companies face ADMI is protected. 

In a interview with Capital.com in July, Danni Hewson from AJ Bell said: “These businesses have a cushion created by the pandemic and that could be used strategically to help them mitigate the worst of the squeeze.”

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