BofA Reinstates UK Insurance Coverage, Names Aviva and Admiral as Top 'Buy' Picks

BofA Securities has reinstated coverage of the UK insurance sector, identifying compelling dividend yields and designating Aviva and Admiral Group as its top picks with "Buy" ratings. The bank's analysis points to yields ranging from 4.8% to 7.6%, which it notes are significantly higher than the broader UK market average.

BofA's Preferred Insurers

BofA initiated its "Buy" rating on Aviva (AV) with a price objective of 800 pence. The bank projects Aviva will return 24% of its market capitalization to shareholders over the next three years, supported by an estimated 11% annual operating earnings-per-share growth from 2025 to 2028. Analysts also see potential for further growth from the integration of Direct Line and capital-light business expansion, according to the report.

Admiral Group (ADML) also received a "Buy" rating with a price objective of 4,200 pence. BofA highlighted the company's 35% year-to-date share price gain, driven by improved motor insurance pricing. The bank forecasts about 8% annual earnings-per-share growth through 2028, noting that its reinsurance structure supports a capital-light growth model.

Sector Yields and Neutral Stances

The core of BofA's positive thesis is the sector's dividend appeal. The firm's report states the high yield range for UK insurers compares favorably to the 3.3% yield of the broader UK market and the 4.7% average for the European insurance sector.

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While bullish on select names, the bank took a more cautious stance on others, reinstating "Neutral" ratings for Legal & General (LGEN), M&G (MNG), and Standard Life. According to BofA, while these firms offer attractive yields, they face challenges in growing their book value and are focused on rebuilding dividend coverage, which could cause dividend growth to lag earnings growth.

Opportunities and Headwinds

BofA identified several growth avenues for the industry, including workplace pensions, retail savings, and both institutional and retail annuities. These opportunities provide a potential runway for expansion across the sector.

However, the bank also flagged potential headwinds for investors to consider. These include margin pressure from narrowing credit spreads, increased competition, and changes in business mix. BofA also cautioned that policy uncertainty surrounding the upcoming UK Budget could impact market flows and the bond market.