How to get insurers to pay out

Dull, dull, dull. This is the view of the stock markets among a number of British companies that claim UK investors are tediously risk-averse.

These businesses are shunning Britain, choosing instead to have their shares listed in the US, where there is more of a taste for a gamble.

Software giant Arm and construction company CRH are among those taking the trip across the Atlantic. Others are set to follow.

You may feel somewhat insulted by this assessment of your investor profile, believing that you too know how to be audacious. But you may also be sensing that the focus on UK markets could offer opportunities, as the Government is forced into action to re-establish the image of Britannia as cool, rather than boring and backward-looking.

In particular, this could be the time to take a bet on the FTSE 100’s insurers Aviva, Legal & General and Phoenix.

These giants – who concentrate on the management of pension and other savings – offer bumper dividends, plus the prospect of growth.

One key source of this growth is set to be an overhaul of rules and regulations that promises to inject fresh dynamism into the UK markets.

Chancellor Jeremy Hunt’s Edinburgh reforms should enhance the City’s allure. Meanwhile, the revisions to the Solvency II regime (an EU directive covering the capital that insurers are required to hold) are also set to bring considerable benefits.

Insurers are enthusiastic about the shake-up. Andy Briggs, boss of Phoenix Group, which owns Standard Life, is poised to commit billions to UK infrastructure.

Aviva chief executive Amanda Blanc also emphasises the company’s willingness to invest billions in energy, housing and start-ups. Such projects would reinvigorate the economy. But they should also help insurers’ share prices to prosper.

This optimism contrasts with the gloom that surrounded insurers in the wake of the mini-Budget, whose measures sparked a sell-off in the gilts market. This rout spread alarm among defined benefit company pension schemes which were obliged to meet margin cash calls on complex liability driven investments (LDIs). Insurers are the major players in the £1 trillion LDI sector.

Today, however, this unhappy set of circumstances is seen as a ‘black swan’, a once-in-a-lifetime event which may even prove another boon for insurers. As a consequence of LDI angst, more company bosses may offload defined benefit schemes to Aviva, Legal & General and Phoenix.

Investing: Aviva chief executive Amanda Blanc

Phoenix is best known as the buyer of closed life funds (where no new policies are being sold), but it has been doing more bulk-annuity business. Thanks to the potential for more such profitable transfers, analysts rate the company as a buy. The shares are trading at 617.8p. This week, Legal & General – which William Meadon, manager of the JP Morgan Claverhouse investment trust, describes as ‘one of the UK’s best capitalised insurers’ – reported a surge in bulk annuity activities.

Job Curtis, manager of the City of London investment trust, a holder of the stock, calls a ‘good company’ – high praise.

The shares stand at 252p and dividend yield is 7.3 per cent. Boss Sir Nigel Wilson contends that there is ‘strong headroom’ for further rises in payouts, given its ‘high synergy, strong capital backing and ambitious growth targets in each of its markets’.

Blanc is also ushering in a new era at Aviva. This week, the group unveiled a £300m share buyback scheme following a 35 per cent jump in operating profits.

Acquiring shares in Aviva, Legal & General and Phoenix ought to enable you to back a regulatory revolution that gives Britain a new impetus. You could also spread the bet to the whole UK market and further improve your income through ‘dividend hero’ trusts like City of London, JP Morgan Claverhouse and Merchants. Unloved UK shares are seen as attractively cheap. It could be the start of a beautiful adventure, with fat dividends as great company on the way.