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UK life sales next domino to fall in global crunch, says analyst

The UK life sales are the “next domino to fall” in the global credit crunch, analysts Keefe Bruyette & Woods have forecast.

In a note today KBW predicts there will be a domino effect as the UK economy and associated life sales will follow equity markets and the US economy down.

It says UK firms are more exposed to equity markets than their European counterparts and highlights Legal & General and Standard Life as two companies with high sales exposure to the deteriorating UK economy.

Aviva and Old Mutual have seen the largest reductions in embedded value forecasts, but KBW is still maintaining them at outperform and market perform.

It says target price upsides have come down by 15 per cent on average across the sector since June 2008.

UK life offices’ embedded value is being hit by higher bond yields, while their European counterparts are actually benefiting from this, says KBW.

It says the exception is Prudential, which it says is the only UK player to be benefiting from these higher yields.

The non-life insurance sector is set to fare better, according to the KBW forecast, which says increased distribution and cheaper valuation is making this sector attractive.

KBW notes that Aviva’s life exposure is diversified and less dependent on the UK.


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