Why a high dividend does not shield insurance companies from stock market volatility

Insurance companies are quintessentially solid stocks that repay the investor very often with generous dividends. Suffice it to recall the case of Allianz, a stock with a stable yield, as the company has been paying a dividend to its shareholders for more than 25 years: since 2000, shareholders have received a dividend without interruption. But also other giants of the European insurance world have not been outdone over the years.

"In general, the insurance sector is rather defensive and little exposed to tariff-related turbulence, which is why it has recently outperformed," explains Jerôme Legras, managing partner and head of research at Axiom Alternative Investments, an independent French management company. - However, seen in the broader context of US protectionism, there is a little-considered risk: the US could react to the European digital tax with a specific tax on US subsidiaries of European companies (so-called Section 899 taxes). This could have an impact on some large European insurance companies'.

Market volatility could be a problem for weaker life insurance companies with high exposure to risky assets. However, as the expert suggests, this fear is limited as regulatory adjustments offer significant protection from transitory volatility. "Overall, we believe the sector is fairly valued and we look more carefully at idiosyncratic situations."

Many insurance companies have announced higher dividends for 2026 than for 2025. In addition to the aforementioned Allianz, there is the Swiss Zurich, which paid a dividend of CHF 26 in 2024 and announced a dividend of CHF 28 in 2025. Undoubtedly, a sign of good health.'Yes, higher dividends are generally an indication of good health and financial strength,' Legras continues. -However, insurance companies are subject to strict regulation and dividends can also be influenced by cash flows from subsidiaries and complex accounting mechanisms, which can sometimes be disconnected from actual business performance. For this reason, dividends should not be considered the only relevant indicator'.

Some deal only in life insurance, some only in non-life and some (more frequently) in both. Not to mention the advance of bancassurance, which seems to excel over many. One wonders which businesses are more solid at this stage. "Large-cap multi-line insurance groups are trading at historical highs in terms of P/E, with total returns (sum of dividends, buybacks and book value growth) of less than 10%. - Legras further details. - We believe that there is more potential in mid-cap stocks with lower valuations, recovery stories, and limited sensitivity to recession risk'. Among the stocks mentioned is Scor, the world's fifth-largest reinsurance company, which has a very strong balance sheet, strengthened reserves and reduced exposure to stock market and interest rate movements. The earnings mix is more resilient than others in the event of a possible price slowdown in non-life business (P&C) after a difficult market lasting several years and growth in diversifying, high-yield business such as structured solutions, with a very low multiple.