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Life sector could be hit by domino effect

Life sales will be the “next domino to fall” in the global credit crunch, says Keefe Bruyette & Woods.

Analysts Greig Paterson and Steven Hayward predict that a domino effect will take place as the UK economy and associated life sales follow equity markets and the US economy down.

They consider that UK firms are more exposed to equity markets than their European counterparts and highlight Legal & General and Standard Life as two companies with high exposure to the deteriorating UK economy.

They say that target price upsides have fallen by an average of 15 per cent acr- oss the sector since June and UK life offices’ embedded value is being hit by higher bond yields.

The general insurance sector is set to fare better, according to the KBW forecast, which says increased distribution and cheaper valuations are making this sector attractive.

An earlier note by Redburn Partners analyst Lance Burbidge has a different viewpoint on Standard Life, as it says that the insurer’s embedded value assump-tions have been historically conservative which makes it a good value stock to buy at the moment.

A Standard Life spokesman says: “We have a strong and diverse business, both in geography and product offering, and believe we are well placed for success. We are looking forward to updating the market on our sales position when we announce our interim results on August 6.”

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