Overview
Analyst Survey 2025 (full report)
From an equity market perspective, insurance is clearly a popular pick for investors. In Europe, this is a sector where large-cap names have consistently outperformed the index over the past decade, and there are still plenty of opportunities to complement this with names in the mid-cap portion of the industry that remain underappreciated.
In Europe, all non-life insurance markets are well differentiated. The UK is a hyper-competitive market because customers rely so much on price comparison websites. Although car insurance prices rose around 30 to 50 per cent in 2023, this momentum fell sharply over 2024 as companies competed for new customers.
Conversely, in markets such as Norway the industry is far more consolidated. There, customers are likely to have multiple policies with one firm and will remain loyal for several years. Scandinavian insurers can therefore take a slower but steadier approach to pricing, consistently applying increases over several years to maintain profitability.
One theme that binds these very different markets together is continued consolidation through M&A. The insurers we speak to increasingly talk of the advantages of scale given the growing cost of regulation and the investment required to stay at the cutting edge of data analysis and technology. In recent years in the UK, we’ve seen Esure taken private by Bain Capital in a deal that offered a 37 per cent premium to the undisturbed share price, Hastings acquired by Sampo Group at a 35 per cent premium, and most recently Aviva agreeing to buy Direct Line for a 73 per cent premium. Similarly in Scandinavia, Tryg acquired Alka, Alm Brand acquired Codan, and Sampo acquired the remainder of Topdanmark for a 27 per cent premium.
It’s long been known that European insurers are attractive on a standalone basis. They offer high returns on capital, low-risk investment portfolios, and profits that are generally less correlated with the broader macroeconomic environment than companies in other industries. For example, buying car insurance is often a legal requirement, while people are less likely to cut back on their home or health insurance during a recession than more discretionary purchases. That sort of visibility of returns is attractive in any environment.
Insurers in the space typically offer starting dividend yields of 4 to 6 per cent, often supplemented by some form of extraordinary capital returns such as share buybacks that can add a further 1 to 2 per cent. There are opportunities for growth alongside this too as companies branch into new products or win more market share.
But the nuanced nature of the different European markets and where they’re positioned in the pricing cycle, the perceived complexity of insurance, and the smaller size of some of these mid-cap companies means this remains an area of the sector worthy of investors’ attention.
