European insurance sector view: Cautious on pricing and valuation; upside in catalyst driven stories

Research evidence excerpt

European insurance sector view: Cautious on pricing and valuation; upside in catalyst driven stories

Cautious sector view on European insurers

Cautious view on valuation and earnings momentum

⚫We maintain a cautious view on the sector. Total return outlook more limited than prior years after outperforming the European equity markets over the past

3 years.

⚫Valuations are high relative to history on P/E relative to European equity market, although dividend yield and capital returns are attractive relative to history

⚫We see limited overall upside to consensus earnings. for 2026E-27E, and the positive earnings revisions we saw over 2023-24 relative to the market have

flattened out.

⚫P&C pricing remains under pressure for commercial lines and P&C property-cat reinsurance – and expectations of continuing pressure relative to loss

trends. Retail P&C pricing is more constructive in continental Europe and looks to be stabilising in UK motor.

⚫Sector remains very well capitalised with manageable debt leverage, less asset risk (including private debt) than investors perceive, and record Solvency II

ratios (>220% on average).

Positioning relative to Banks and Diversified Financials

⚫Insurers have underperformed Banks and Div Fins. Banks have looked relatively inexpensive with NII upgrades, deregulation and growth, and investors

remain OW relative to insurers. Div Fins have been supported by traditional asset manager re-rating and M&A.

⚫We expect investors to maintain a preference for Banks, but would suggest diversifying into inexpensive, catalyst driven insurers to diversify Financials

exposure if you are OW Banks – insurers are idiosyncratic, and not as interest rate sensitive as Banks. Insurers could outperform in a falling yield environment.