A combination of exceptional circumstances is giving the life assurance majors a new lease of, well, life. A combination of better actuarial assumptions - i.e. more people dying earlier because of the pandemic - alongside excellent market returns and disposals have left sector bank balances groaning with cash to distribute to shareholders. Both Aviva (AV.), and to a more limited extent Legal & General (LGEN), have benefited from retrenchment in their home markets and have committed themselves to raising pay-outs and enacting share buybacks.
The structure and habits of UK life assurance companies means they offer investors little other than the security of high yielding dividends. This is dependent on their ability to measure and offset risk – effectively making them a mental arithmetic exercise with a nameplate on the door. Importantly, the need to balance risk within certain regulatory-defined parameters limits the ability of life assurers to grow their balance sheets, meaning that capital returns rising equity prices are much harder to achieve.
Therefore stolid, solid stability is the name of the game, and it is these qualities, along with the long-term security and stability of the dividend, that makes L&G our pick of the income majors in this sector.