Insurance companies amid record profits, stock market discounts and the unknown Hormuz

The global insurance industry looks to 2026 balancing outstanding technical fundamentals but increasing geopolitical pitfalls. After the strong expansion of European earnings per share (+11% in 2024, +14% expected for 2025), projections converge on a normalisation to a solid +6% in 2026-2027. Numbers that armour the sector's attractiveness, guaranteeing an average dividend yield of 5%. However, in a war economy it may be difficult to recommend the insurance sector with losses, perhaps large ones, resulting from the military escalation in the Middle East. "The sector also has a higher Beta than stock market indices," points out Filippo Alloatti, Head of Financials Credit at Federated Hermes .

That said, some stocks are evergreen, retain excellent profitability prospects and a good capital cushion to absorb sharp stock market movements. In Europe in 2025, the combinated ratio, the key indicator of technical profitability of insurance companies, especially in non-life insurance, thanks to a less demanding trend on the claims front, was positive and around 90/92% for the major players (from Generali to Unipol). For those operating in the life sector, a scenario characterised by rising rates has played in favour in recent years, which, although not high, has enabled them to bring home better results. Those operating in Italia, for example, with a leading position move in a market where, thanks to the high savings rate, they can count on a solid business because life policies are mainly investment products and this allows good profitability and low volatility. "In the US, giants like Aig optimise margins to consolidate capital. In Italia, the diversification of 'multiline' groups acts as a shield against volatility,' explains Michele Anelli, fund manager at Pharus. 'Yet, the European sector index (Sxip) travels at a valuation discount of around 25% (in terms of Price-Earnings) compared to the European market (Sxxp) - In Italia, value is shifting from the motor branch to the 'Non-Motor' segments (health, home, income protection). Closing the "protection gap" drives health (+12.5%) and catastrophe covers. Households and businesses are protecting themselves more, boosting the balance sheets of domestic leaders (Unipol, Generali) and SME specialists (Revo)".

For Alloatti, the evergreen stocks include Axa for a start and Munich Re. "Axa's premium portfolio,' he details, 'is very diversified, as are its margins. The divestment of asset management activities should reduce sensitivity to stock market corrections. Higher reinvestment rates on bonds will improve the investment result. The Solvency II reform is expected to add 17 points to the already high solvency ratio (224% at the end of 2025). On the profitability of health insurance (17% of premiums), the results of the actions taken are awaited'. For Alloatti Munich Re, the reinsurance giant, is the highest quality name in the industry. Here, too, the high solvency ratio (286%) after dividends and share buybacks should compensate for the volatility of future results. "A lot will depend on the activation of the war exclusion clauses," Alloatti further emphasises, "present in marine and aviation policies. Then the M&A corner remains, with Zurich's takeover of Beazley, other Lloyds of London syndicates, such as Hiscox, have speculative appeal'.

Testing the resilience of the system is the escalation in the Middle East. 'The logistical blockade in the Strait of Hormuz has triggered a precise dynamic,' Anelli details. 'Players focused on maritime and war risks, such as Beazley and Hiscox, reacted first by collecting record premiums due to exploding rates. Working with short-term policies, these companies are much more insulated and protected from long-term macroeconomic risks. Then there are reinsurers such as Munich Re and Swiss Re, which govern systemic risk. The tense scenario favours premium renewals to direct companies (hard market). Their potential latent risk remains linked to payouts for global supply chain disruptions'. According to Anelli, traditionally perceived as 'safe havens', generalist and life insurance operators (such as Axa and Generali) face a complex scenario. "Should the trade blockade trigger a further macroeconomic deterioration, possible inflationary pressures and consequent rate adjustments would in fact affect the time exposure of their balance sheets, requiring careful and dynamic management to preserve current capital stability.