Goldman Sachs has initiated extensive coverage on the European insurance sector, focusing on both life insurers and multi-line composite insurers.
This coverage includes nine key companies and Goldman Sachs introduces a new valuation framework based on IFRS 17, providing insights into the sector’s strong fundamentals, opportunities for stock-specific performance, and the implications of central bank policy easing.
The European insurance sector has performed well over the past 12 months, outperforming the Eurostoxx 600 by about 7%, though it has underperformed the broader financials space.
Despite its performance, the sector remains attractively valued, trading at around 10x price-to-earnings (PE) ratio (12-month forward consensus), which is the fifth lowest among sectors in the Eurostoxx 600 index.
Dividends are well covered, with an average total return yield of around 8.5% expected by 2026, driven by both dividend growth and recurring share buybacks.
Solvency across the sector is also robust, with excess capital representing about 9% of market cap, providing resilience to market shocks and additional capital return potential.
The sector’s fundamentals remain strong due to its diversification of earnings and geographic exposure, particularly in multi-line insurers, which offer protection against downside risks in volatile markets. Central bank policy easing is expected to create a favorable environment for insurers, particularly in the retail property and casualty (P&C) and life insurance segments.
Analysts at Goldman Sachs introduced a new valuation framework based on Price to Adjusted Tangible Book Value (P/ATBV) under the IFRS 17 standards.
This framework accounts for the contractual service margin (CSM)—a store of future profits—and risk adjustments above reserves, providing a clearer picture of future capital return potential.
The return on adjusted tangible book value (RoATBV) is used as a key indicator to assess growth potential and capital deployment opportunities.
Goldman Sachs has initiated coverage on nine key companies, issuing buy recommendations for Generali (BIT:), Allianz (ETR:), Aviva (LON:), and Munich Re.
1. Generali (Buy, 12M price target €31.5)
Generali stands out as one of the insurers best positioned to benefit from central bank policy rate easing.
Over 60% of Generali’s new business comes from Italy and France, where concerns over policy lapses are prevalent.
With declining short-term rates, these lapse concerns are expected to ease, and Generali’s life insurance business should become more competitive.
Additionally, Generali’s strong contractual service margin (CSM) is growing at one of the fastest rates among multi-lines, providing a significant store of future profits.
2. Allianz (Buy, 12M price target €349)
Allianz is positioned to benefit from policy rate easing, particularly through its asset management business, led by PIMCO, which boasts significant third-party assets under management (AUM).
Allianz’s fixed income business saw net outflows in 2022 due to rising interest rates, but inflows resumed in 2024, supported by the central bank’s policy easing.
The company’s retail P&C division also presents upside potential, with analysts estimating a favorable combined ratio for 2025 and 2026.
3. Aviva (Buy, 12M price target 572p)
Aviva is flagged for its underappreciated earnings potential, particularly due to its ongoing business mix improvements. The company’s transition from capital-intensive life insurance to capital-light segments such as P&C, health, and wealth, positions it for re-rating.
Aviva’s shares are expected to deliver a total return yield of around 11% by 2026, with DPS growth forecasted at 7.5%.
Analysts view Aviva as increasingly comparable to European multi-line insurers, with the potential for multiple expansion over time.
4. Munich Re (Buy, 12M price target €560)
Munich Re is expected to benefit from the favorable P&C reinsurance market, with potential upside in life earnings through financial-motivated reinsurance (FinMoRe).
Analysts estimate Munich Re will outperform consensus estimates by 5-7% in 2025 and 2026, driven by growth in both reinsurance and life segments.
5. AXA (Neutral, 12M price target €37.5)
AXA has made significant strides in repositioning its business away from financial risk, but analysts see limited upside as much of this growth is already reflected in consensus forecasts.
AXA’s commercial P&C bias also limits its ability to outperform compared to peers with a stronger retail focus.
6. Zurich (Neutral, 12M price target CHF522)
Zurich has been one of the top performers in the sector over the past decade.
However, analysts note that the company’s commercial P&C focus limits further re-rating opportunities, with consensus estimates already at the top end of Zurich’s 2023-2026 strategic plan.
7. Swiss Re (OTC:) (Neutral, 12M price target CHF127)
Swiss Re’s reserving approach and focus on long-term resilience are favorable, but short-term upside is constrained.
While the hard reinsurance market offers opportunities, analysts view Swiss Re’s approach as limiting immediate profit potential.
8. Legal & General (Neutral, 12M price target 231p)
Increased competition in the UK bulk annuity market is expected to balance supply and demand, limiting L&G’s potential for significant outperformance.
Moreover, the company’s credit leverage exposes it to downside risk in the event of macro shocks, even though its underlying fundamentals remain strong.
9. Phoenix (Sell, 12M price target 543p)
Phoenix faces the most challenges among UK insurers, with declining adjusted book value and limited capital return potential.
Analysts highlight Phoenix’s high financial leverage and slow capital generation as key concerns. While Phoenix’s cash flow metrics are not necessarily poor, they do not stand out compared to peers.
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