Insurance Company Share Trading Recommendations

Submitted by Craig Strzelecki on 6 February, 2007 - 22:18

There are a few listed insurance companies listed on the Australian Stock Exchange (ASX) such as QBE, AXA, AMP, IAG and SUN. QBE remains Citigroup Investment Research's (CIR) stand out pick. Despite its strong recent run, CIR still view QBE as their top pick in the Australian insurance sector. It looks likely to report a very strong result – their 22.2% insurance margin forecast is top of the market and we flag upside risk. In addition, it still has plenty of balance sheet flexibility for future acquisitions and its reserving levels, as measured by its probability of sufficiency, remain strong. In their view, both AXA and AMP are expensive stocks but then a likely boost to superannuation from recent Government changes is one of the strongest industry thematics. These stocks look vulnerable in the event of a market downturn, but in rising markets seem likely to continue to perform well."AXA before AMP": AXA and AMP are therefore CIR's second and third sector picks respectively, though they would not necessarily recommend holding both given the risk of choppy markets ahead. Instead they would combine one of these with a less market sensitive stock. At the moment their preference lies with AXA though this is much more marginal than it was and they will review this in reporting season. CIR retain their Hold on both stocks. "Then SUN over IAG": With the potential for choppy markets CIR would also pick a stock less exposed to markets. While again a marginal call, CIR favour Suncorp due to relative pricing, incentives to boost its 1H07 result, the possibility of a capital return later in the year and potential support from technical factors. CIR retain their Hold on both stocks.

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