Prudential, Legal & General and the Just Retirement Partnership group have been earmarked as firms that could suffer if the recent market volatility following the EU vote continues.
An analyst’s note published by JP Morgan Cazenove this morning says some firms are better positioned than others to cope with the share price falls seen on Friday after the UK decided to leave the EU.
The note examines whether firms have enough capital under Solvency II requirements to withstand sustained market volatility.
Analyst Ashik Musaddi says due to the risk of credit defaults, downgrades to credit ratings and the prospect of a cut to interest rates, the three firms would struggle on capital.
Musaddi says: “If this is the beginning of the volatility then we believe the group of insurers that would struggle the most are Prudential, L&G and the Just Retirement Partnership group as the starting capital position isn’t very impressive.”
The analyst note goes on to explain that Just Retirement Partnership shares may come under added pressure due to a potential decline in bulk annuities business in the event lower interest rates continue.
Conversely, the JP Morgan Cazenove note argues the falls in the share price of St James’s Place, which fell to 521p in early trading on Friday, “look aggressive”.
It says if this is the end of market volatility, the share price falls seen for L&G may also be overly harsh.
Musaddi says: “In light of uncertainty around volatility, we would remain positioned with insurers that have strong stock of capital such as SJP, Standard Life and Aviva, yet offer strong flow of capital to shareholders in the form of dividends.”