Insurance is the quiet success story of the British financial services industry. While UK banks continue to be hamstrung by government ownership and poor reputations, our insurers are powering ahead and selling to the world – prompting a construction boom in the City’s insurance district around Fenchurch Street. We were looking for companies that were either taking part in this export boom – or doing their best in a tough domestic market characterised by fierce competition.
The entire stock market should thank Direct Line, which singlehandedly revived the London IPO market when it went public in October 2012. Its successful £2.6bn float enticed other companies to come to the market and benefited investors who were brave enough to buy into the company at the start– they have seen their 175p shares rise 20 per cent, leaving the company sitting just outside the FTSE 100. A continued cost-cutting programme has pushed up profits in the face of tough competition.
Last year’s winner was praised by the judges as showing “more growth potential than most British insurers”. And this year Prudential proved them right, with enormous sales in Asia pushing group profits to record highs. During 2013 the company went quiet on plans to relocate its HQ away from Britain but analysts suggests a break-up of the company could still be on the cards. The only question is just how long it can hold onto high-flying chief executive Tidjane Thiam, who is repeatedly linked to a potential political career.
Legal & general
Steady and reliable, Legal & General shares have still managed to gain 40 per cent over the last year thanks to record profits. Most importantly, it can’t stop producing cash for happy investors who see potential in the company’s savings, protection and annuity products – especially following the introduction of automatic enrolment for pensions. The company has also pleased chancellor George Osborne by offering to invest directly in social housing and major infrastructure projects.
Partnership Assurance is included in this list for its innovative approach to the annuities market, involving the use of propriety software to price generous annuities for people with substantially reduced life expectancy, such as smokers and people with heart problems. Partnership went public in June in a popular £1.5bn IPO and – despite a recent share price fall – is set to join the FTSE 250 this week. Analysts are divided on its long-term prospects, with fears that continued success will attract bigger players – but we feel it is one to watch.
Until recently Resolution was seen as one of the worst examples of the pre-crash leveraged takeover madness: a complicated corporate structure attempting to consolidate a ragtag selection of insurers saddled with enormous debts. But the FTSE 100 business is trying to make a clean break with the past, abandoning its acquisition strategy and combining three of its major businesses into the single Friends Life unit. Investors are enthusiastic about the company’s plans to target baby boomers looking to buy annuities.