Insurance sector looks to rally after heavy losses

The Budget on Wednesday dealt the insurance sector a heavy blow, but it seems a gentle recovery is underway.

In the wake of the chancellor's Budget on Wednesday, the insurance sector dropped by 5.3%, after he declared pension annuities would no longer be compulsory.

Legal & General, the biggest provider of annuities, slumped by 13%, although others, such as Prudential, got away with lighter losses. The following days have not seen a continuation of this downward move, with investors becoming more sanguine about the outlook, given that most annuity providers have other business streams to fall back on.

We have seen a steady uptrend in this sector since the second half of 2012, with a series of higher lows and highs; a very encouraging sign. This leads me to think that the current drop is a temporary selloff, putting a retest of 7400 in the frame.

Both the 100- and 200-day moving averages have proved to be significant support for the sector, with yesterday’s daily close above the 100-DMA looking particularly positive. On the way up, the January highs of 7200 could provide some resistance, but I believe the recent selloff has merely provided an excuse for new buyers to enter the fray.

Life insurance sector chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts