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STOCKS NEWS EUROPE-Citi sees positive outlook for insurers

Citi sees a positive outlook for the European insurance sector saying the companies still appear inexpensive despite two years of outperformance.

"We would advocate remaining positive on the European insurers; we do not believe valuations are stretched and we believe the strategic outlook for insurance business models is continuing to look attractive," Citi says in a note.

According to Thomson Reuters Datastream, the STOXX Europe 600 insurance index trades at 10.4 times its one-year forwards earnings, against 13.6 times for the broader STOXX Europe 600 index.

The insurance sector rose 33 percent in 2012 and 29 percent last year, outperforming the STOXX 600 index, which advanced 14 percent and 17 percent respectively during the years.

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Although absolute valuation multiples have improved, the sector's cost of equity remains elevated, Citi says, adding that it expects better capital clarity to support the sector's dividend growth, investment in top-line growth and the prospect for increased capital management.

Citi's "most favoured" stock list includes Aviva (Other OTC: AIVAF - news) , AXA (Paris: FR0000120628 - news) , Delta Lloyd (Frankfurt: 98D.F - news) and SCOR, while Admiral, Amlin (LSE: AML.L - news) , Generali (Frankfurt: 850312 - news) and Standard Life (LSE: SL.L - news) fall in its "least favoured" category.

Shares in Aviva are up 1.7 percent, AXA gains 0.5 percent, Delta Lloyd is up 0.9 percent and SCOR is flat. Admiral falls 0.2 percent, Amlin up 0.2 percent, Generali drops 0.9 percent and Standard Life gains 0.8 percent.

Reuters messaging rm://atul.prakash.thomsonreuters.com@reuters.net