Berenberg upgrades M&G to 'buy' as it turns attention to UK life insurers

(Sharecast News) - Berenberg upgraded M&G on Monday as it turned its attention to UK life insurance stocks The bank said life insurance is its favourite segment within the European insurance sector, ahead of reinsurance, non-life insurance and composites.

Its preference is due to the life insurers in Europe benefiting from continued growth in demand for pensions, attractive investment returns linked to still-strong levels of interest rates, and valuations that remain attractive.

So far this year, Berenberg said it has mainly focused on the Dutch life insurers NN Group (buy), ASR (buy) and Aegon (buy).

"In this note, we turn the spotlight on the UK life insurers Phoenix (buy), Legal & General (buy) and M&G, which we upgrade from 'hold' to 'buy'."

Berenberg note that M&G reported "very strong" solvency of 230% in H1 2025, which means it estimates there is circa £1.4bn of surplus capital above the group's 190% minimum solvency target.

"However, M&G stressed that it views its strong solvency capital as a source of flexibility and potential funding for bolt-on deals, with management highlighting the opportunities in private asset management in Europe.

"In addition, we believe that M&G would benefit from increasing its exposure to workplace pensions in the UK, which is a market that has structural net inflows. We believe that the strong trend that M&G is already seeing in asset management, with £2.6bn of net inflows in H1 2025, plus its new distribution initiatives, will lead to rising AUM, more OCG and higher DPS growth."

More broadly, it said: "We believe that the UK life insurers offer attractive upside thanks to growth from pensions, attractive investment returns and strong operating capital generation (OCG), which is an earnings metric that is close to cash."

Berenberg added: "For now, the UK life insurers' OCG is being used to fund deleveraging and new business growth, but going forward we believe that it will be used to increase dividend growth."

The bank is forecasting a rise in DPS growth in 2025E-27E to a 5% compound annual growth rate at Phoenix, a 4% CAGR at M&G and a 3% CAGR at L&G.

It lifted its price target on M&G to 342p from 225p and on L&G to 289p from 265p. The Phoenix price target was nudged up to 852p from 850p.

At 1230 BST, M&G shares were up 2.3% at 260.70p.