Johannesburg - A possible special dividend from Sanlam [JSE:SLM] and uncertainty about Discovery's life insurance business are two issues that will keep insurance industry analysts intrigued in coming weeks.
Analysts at Credit Suisse Standard Securities have flagged Sanlam and Discovery [JSE:DSY] as two firms to watch in the short term.
Although the group maintains its neutral recommendation on Sanlam for 2010, it has pencilled in a one-year price target of 2 700c a share for the firm - 17% above the present price of 2 294c.
Also, it believes shareholders could score should Sanlam decide to release some of its R3.1bn excess capital. A reason for supporting this notion is that asset prices have risen significantly in the second half of 2009, lowering the opportunity for a major acquisition.
By holding excess capital on its balance sheet, Sanlam would produce lower returns for shareholders than if the capital was either distributed or invested.
Also, according to Credit Suisse Standard, there are moves afoot to release additional excess capital from Sanlam Employee Benefits (up to R1.5bn) and Botswana Life operations (up to R750m).
Credit Suisse Standard has adopted a bearish outlook on Discovery Holdings, lowering its recommendation for the financial services group to "underperform".
It cautioned that policy lapses could cloud the earnings outlook of Discovery Life, which is now the biggest earnings contributor to the group, as will an acceleration of losses from the UK operations. Another concern for Credit Suisse Standard was that Discovery's 2.1% forward dividend yield remained "unattractive".
An increase in lapsed policies has been a headache for Discovery's rival Liberty Holdings, which has seen sales of its life and risk insurance products under pressure over the last 12 months. Much of this has been driven by a sharp increase in unemployment.
At close of trade on Tuesday, Discovery shares were down 0.22% to 3 185 cents per share. Sanlam was up 0.57% at 2 290c/share.