JP Morgan this week enticed shareholders to sell their Royal & SunAlliance (R&SA) stock and head for Aviva, which it said was better value.

Aviva is expected to increase household insurance premiums as a result of summer flood damage, and its motor insurance premiums are also expected to rise.

A number of big US investment institutions have been taking stakes or increasing their holdings in Aviva, with the result that 25% of its shares are owned by US investors.

But for Citigroup, the key words were ‘reserving’ and ‘conservatism’ – something it believed R&SA had shown, but Aviva had not.

Aviva, it said, had put less conservatism into reserving for the most recent accident year, which would impact on its next releases and might cause the group to miss its targets.

R&SA, however, had been building up reserve levels over the past few years.

R&SA remains Citigroup’s “preferred play” in the UK non-life sector, while it “remains to be convinced that [Aviva] will gain much traction” with household and motor premium increases.

Aviva shares were at 769p (up 3.29% on the week), and R&SA shares were at 152.3p (down 1.74%), as Insurance Times went to press.

Citigroup also warned that Brit could face difficulty in gaining market share given margin compression in its key lines of business.

It said the insurer would be expected to gain share when the market turns, which it could not foresee happening until after 2009.

Shares in Brit were 338.25p (down 0.37%).