Credit Suisse ups European insurance to overweight, downgrades banks

Their performance had become less sensitive to bond yields over the past 18 months, unlike European banks or US life insurance, it said.

Regarding insurers, the trade-off between free-cash-flow yield (8.9%) and dividend yield (4.3%) was the best in the market while P/E and P/B relatives were at historical lows.

The European life sector offered scope for a 20% re-rating versus the market, helped by the factors that helped their US peers.

UK life companies were 20% cheap against asset managers but might be considered superior asset management plays given their scale and stickier assets, the broker added.

Dividend momentum was the strongest of all sectors and earnings revisions were better than those for the market.

The Swiss broker´s analysts specifically recommend Axa, Aviva and Prudential.

On the other hand, the research team led by Andrew Garthwaite lowered its 'overweight' position in European banks to just marginally so.

They were the most sensitive sector to falling Bund yields and the shape of the yield curve was pointing to a drop in net interest margins.

Their close correlation to the single currency´s fortunes should also be kept in mind, they said.

Adding to the sector´s woes was the long list of one-off regulatory challenges which lied ahead and was "getting no shorter".

Nevertheless, the sector ought to be changing hands on a 10% higher price-to-book multiple of 1.2, Garthwaite believed.

Credit Suisse analysts said they preferred Sanpaolo, Danske Bank and Societe Generale.