The insurance sector has experienced an “unusually weak” start to the year amid softening pricing and AI disruption fears, research from Berenberg has revealed.
The research, Insurance: Connecting the Dots, detailed that, in terms of absolute and relative total shareholder returns, the European insurance sector has had one of the weakest starts to a year in the last 25 years.
While this suggests reasons for investors to be cautious, such as meaningful softening in pricing across the sector, and valuations still being one-standard deviation above the historical average, the report’s authors are “sanguine” about the resilience of the sector.
The authors, Michael Christodoulou, Michael Huttner, and Carl Lofthagen, explained that their analysis revealed that past instances when the sector’s performance early in the year was weak were related to periods of crises and were followed by outperformance in the next year.
To evidence this, the report pointed out that the European insurance sector posted a -0.5 per cent total shareholder return during the first two months of the year, underperforming the broader European market by around 7 per cent.
During the past 25 years, there have only been four other occasions where the sector was down in absolute terms and underperformed the index by a greater margin than in 2026 — with the majority being at times of systemic stress or periods of crisis.
Specifically, these years were 2002 and 2003, due to the dot.com bubble of 2001, followed by 2009, due to the global financial crisis, and 2016, due to persistent low interest rates and weak investment returns.
Despite these drivers, on average the European insurance sector delivered an average absolute total shareholder return of between 30 and 40 per cent in the following 12-24 months, presenting an optimistic landscape for the upcoming year.
The report also pointed out that, importantly, the resilience of the sector currently is “significantly” improved compared to the past, largely due to Solvency II, with lower equities exposure and higher capital levels.
Softening pricing
Additionally, the report suggested that softening sector-wide pricing will lead to more mergers and acquisitions in the space as excess capital is made available.
It explained that insurance is a “cyclical” sector which at the moment is at the stage of the cycle of pricing declines.
Berenberg suggested that, at this stage of the cycle, profitable organic growth becomes tougher to find as one of the reasons behind the declining pricing is increased capacity in the space.
“That is when inorganic growth comes into play, assisting the insurers’ top-and bottom-line growth and, consequently supporting rising DPS,” the report said.
tom.dunstan@ft.com
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