The recent falls in the stock of European financial stocks have presented a buying opportunity, according to RBC Capital Markets. The European insurance sector, for example, has slid by 11% since Mar. 9 following the collapse of Silicon Valley Bank and concerns over other banks. SVB collapsed partly due to a run on the bank earlier this month. Negative sentiment from those losses, according to Swiss authorities, also played a part in Credit Suisse ‘s downfall — and subsequent takeover by rival UBS — and has added downward pressure on European financials . However, RBC analysts say insurers are fundamentally different from banks, and the circumstances that led to SVB’s collapse could not occur at an insurance company. “Bank runs can start from a simple doubt that a bank may be in trouble which causes customers to withdraw money,” wrote RBC analysts led by Gordon Aitken in a note to clients on Mar. 16. “However, there is no such concept as a run on an insurer.” The analysts said they viewed the share price falls as a “buying opportunity” and named the following five U.K. annuity writers as looking attractive at current valuation levels: London-listed shares of Aviva , Just Group , Legal & General , M & G , and Phoenix Group have seen considerable share price falls despite facing few risks due to their substantial capital buffers, according to the investment bank. Shares of Just Group in particular are expected to double over the next 12 months to £1.60 ($1.96) from its current share price of £0.79, according to RBC. The consensus price target of all analysts covering the stock is also bullish, with a 60% upside, according to FactSet data. The insurance companies provide pensioners with a regular guaranteed income in retirement, known as an annuity, in exchange for a lump-sum payment. The insurer aims to invest the upfront payment in long-term and high-quality assets. RBC’s analysts also noted that insurers also have an abundance of liquidity compared to banks. “With annuities, the insurer knows exactly what it needs to pay out (week to week) – these are its liabilities,” the analysts wrote. “While bank customers can choose to withdraw their deposits there is no ability for an annuitant to withdraw.” While the insurance firms only hold high-quality investments, as required by law, RBC analysts concede that there is a small risk if the underlying assets fail or if people live longer than anticipated.
