Battered insurance companies took centre stage today as the FTSE 100 continued to advance following the positive consumer confidence report from the US overnight and ongoing hopes that China is preparing to stimulate its flagging economy.
After yesterday’s gains in miners it was the turn of financial stocks, particularly insurers to join the leaders in the blue chip index, which gained 0.4% at 6,629.
Standard Life (SL.L) led the way, up 5% to 393p, after splashing £390 million on Ignis Asset Management, an acquisition that underlines its long-term move from life office to investment manager.
That’s a good direction to be in after last week’s Budget knocked the legs from under annuity providers, such as Legal & General (LGEN).
LGEN has other strings to its bow, however, and even if the market in individual annuities halves, as chief executive Nigel Wilson expects, it still can sell ‘bulk’ annuities to corporate customers. One such, ICI, has just paid LGEN a record £3 billion premium to deal with its pension liabilities, sending the shares up 2.8% to 215p.
Analysts at Barclays Capital reiterated their 'overweight' rating saying that with a 4.4% dividend yield the recent weakness in the shares had been overdone.
Rival Aviva (AV.L) joined in the party rising 2.6% to 494p.
The insurance rally extended to the FTSE 250 where Phoenix Group Holdings (PHNX.L), the insurance consolidator which sold Ignis to Standard Life, rose 3.6% to 735.5p after saying it would use the money to repay some debts and make further acquisitions.
But the eye catchers among the mid caps were Partnership Assurance (PA.L) and Just Retirement (JRG.L), the specialist annuity providers savaged in last week’s pension shakeup. They bounced 7.6% and 5.6% respectively but are still around half their value before the Budget.
RSA (RSA.L) was the sore thumb. Shares in the troubled general insurer, which previously scrapped its dividend to shore up its reserves, fell another 7% after announcing its rights issue to raise a further £733 million.
Lloyds (LLOY.L) was the biggest faller after the government sold £4.2 billion of shares, cutting its stake to under 25% as it prepares for a full exit from its £20 billion investment in 2009.
Simon Gergel, manager of the Merchants (MRCH) investment trust at Allianz Global Investors, warned investors off the stock. 'The government’s placing is no reason to buy the stock – it does not change the fundamental picture – we don’t see much value there. They already trade at a significant premium to book value and have only modest growth prospects, compared to say HSBC which looks cheaper and has better structural growth opportunities,' he said.