Aviva vs Legal & General: analyst names their winner
One of these major insurance companies has significantly outperformed the other over the past 12 months, but the other yields more. Graeme Evans reveals the City’s top pick.
27th January 2026 13:42
by Graeme Evans from interactive investor
A preference for Aviva (LSE:AV.) over Legal & General Group (LSE:LGEN) has been disclosed by a City bank after it flagged the new Direct Line owner’s “well-protected” balance sheet ahead of results in March.
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The analysis by UBS supports a 750p target on Aviva shares, which represents a 19% upside on today’s price after a largely sideways run for the high-yielding insurer in recent months.
Legal & General remains Neutral rated with a 260p target, reflecting the bank’s concern over high sensitivities to a market downturn and medium-term solvency ratio drag.
This week’s comparison of the insurance heavyweights notes that Aviva screens with attractive returns relative to its balance sheet risks.
Aviva boasts a forecast 2028 all-in distribution yield of more than 9%, which comprises 7.6% from dividends and about 2% from share buybacks.
This is below L&G’s respective projected yield of more than 10%, which is made up of 9.1% dividend yield and 1.3% via excess shareholder returns.
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However, the difference is offset by Aviva’s lower payout ratio of 75% of net capital generation compared with 100% for L&G.
UBS believes this lower payout ratio and focus on capital-light business lines should enable Aviva to build its solvency over the next five years towards the sector average.
It expects Aviva to lift its solvency ratio by seven percentage points a year towards 220% by 2030, whereas a four percentage points drag on L&G takes its solvency position to 205%.
The bank said: “Our sensitivity analysis indicates that Aviva is much better protected under a market stress.
“If we apply an extreme credit shock to the 2030 balance sheets, we expect Aviva’s solvency position to still land above its working range of 160-180%. L&G’s solvency ratio would fall to 130% under the same stress.”
UBS points out that Aviva currently screens as expensive relative to AXA SA (EURONEXT:CS), when adjusting for its lower solvency position. However, the bank expects Aviva to build its solvency towards the sector average over the medium-term.
Aviva is due to publish annual results on 5 March, followed by L&G on 11 March.
UBS forecasts that Aviva will post an operating earnings per share figure of 56.1p, which compares with 48p the year before. The total dividend for the year is seen increasing by 10% to 39.3p a share, which is 2% higher than the City consensus of 38.6p.
Chief executive Amanda Blanc told investors in November that the outlook “has never been better” as she highlighted the impact of an increasingly diversified business model, 25 million strong customer base and mainly capital-light earnings.
She updated targets to factor in last summer’s Direct Line acquisition, including compound earnings per share growth of 11% and return on equity above 20% by 2028.
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The policy for mid-single-digits annual growth in the dividend cost was left unchanged, while the company pledged to reintroduce share buybacks in 2026.
The focus of the Aviva presentation is likely to be on the property and casualty segment, particularly margins and pricing within the UK and Canadian commercial arms.
The Legal & General results will focus on the creation of its strategic partnership with Meiji Yasuda, as well as the commencement of a £1 billion share buyback that is linked to the disposal of its US protection business to the Japan-based insurer.
UBS sees a £300 million buyback in relation to 2025 results, where there’s likely to be a focus on institutional retirement after competitors reported pressure on new business margins.
Core operating earning per share is seen rising to 21.3p from 20.23p the year before, with the full-year dividend per share 2% higher at 21.8p.
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