European insurers: in great shape but unprecedented valuation

EUROPEAN INSURERS: IN GREAT SHAPE BUT UNPRECEDENTED VALUATION

Europe's insurance sector hit a new all-time peak earlier this month and while Bank of America analysts believe companies are in excellent shape, they are struggling to see scope for positive surprises given rich valuations.

The STOXX Europe 600 insurers index (.SXIP) has jumped 17.5% year-to-date vs. an 8% rise for the STOXX 600 SXXP, and BofA believes this makes sense as investors shift to defensive stocks due to the tariff-induced market volatility.

"Balance sheets remain strong, capital return appealing and earnings momentum has been supportive," they add.

Yet, the sector's price-to-earnings ratio at 12 times forward earnings has reached its highest in over 10 years, something BofA doesn't expect to last.

"The sector's valuation has reached unprecedented levels in recent months," writes BofA. "We think this level will prove difficult to maintain and expect a drift back towards the sector's 10-year average of 10.3x forward earnings."

With that in mind, BofA has downgraded a number of companies recently, a move that they expect other brokerages to follow.

Still, they do see pockets of value and have named Prudential PRU, Legal & General LGEN and Beazley BEZ as their top picks in the sector.

(Samuel Indyk)

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