Aviva, St.James's and Standard Life set to outperform, JP Morgan says

The upcoming implementation of the Solvency II capital regime will lift a significant source of uncertainty which has been hanging over UK and European life insurers, JP Morgan said in a research note sent to clients.

The new measures will likely see Aviva, St.James Place and Standard Life outperform their UK peers on a relative basis, analyst Ashik Musaddi said.

Aviva’s capital ratio should remain broadly flat, whereas for St.James Place and Standard Life Solvency II will not be an issue due to their asset management type model, he said.

The increased clarity on Solvency II and the outlook for dividend growth will be the key drivers.

Earnings at UK life insurers were forecast to grow by 8% in 2016/17, driving 10% growth in dividends per share.

“On capital, we believe that Solvency II will be manageable with no major negative surprises, although the Solvency II ratios could be lower than current reported economic capital ratios.”

The broker said it preferred Standard Life, St.James’s Place and Aviva over Prudential and Legal&General due to their “stronger dividend growth trajectory and better positioning for Solevncy II”.

For Phoenix on the other hand the main driver of the share price was expected to be M&A.