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

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