Proactive Investors - UK life insurance shares, including Aviva PLC (LON:AV), Just Group PLC (LON:JUSTJ) and Legal & General Group PLC (LON:LGEN), have been hit hard since the collapse of Silicon Valley Bank (SVB) and the shockwaves emanating from Credit Suisse (SIX:CSGN), but analysts at RBC Capital Markets say the market has "overly discounted" the valuations.
The sector has now underperformed the market so far this year, they added, with the perceived discount arising from "investor fears over contagion and credit risk".
Meanwhile, around a 10% dividend yield based on 2024 forecasts, 4ppts higher than the wider FTSE 100, provides "an attractive entry point" to buy the shares, they added, with Aviva, Just Grop, L&G, M&G PLC and Phoenix Group Holdings PLC (LSE:PHNX) all rated 'outperform'.
The sector is seen as "cheap on an absolute and relative dividend yield basis", with Just Group the exception, but "undervalued" based on its price being half its book value.
Recent strong results for the sector showed surplus capital levels improve, with an average Solvency II ratio of 207% and asset portfolios were "very high quality".
"Further, the outlook is constructive with rising rates providing an inflection point in demand for bulk annuities and the slowing UK life expectancy to generate continued longevity reserve releases for several years."