Why have European insurance stocks outperformed the market amid war risks?

Investing.com - In a research report published on Friday, RBC Capital Markets said that since the Iranian war began on Feb. 27, European insurance stocks have outperformed the broader market, falling 7%, while the STOXX Europe 600 index is down 9% and European bank stocks are down 11%.

This relative resilience reflects the non-discretionary nature of insurance demand, strong initial balance sheets, and the sector’s ability to reprice when inflation rises.

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There is clear divergence in performance within the sector. Since Feb. 27, UK auto insurance stocks are up 6.8%, while UK life insurance stocks are down 9.8%, becoming the worst-performing subsector.

Citing Datastream data, the broker said that over the same period, reinsurers are down 4.9% and composite insurers are down 8.0%.

Bloomberg data show that at the individual-stock level, since Feb. 27, Beazley has surged 54% versus the STOXX 600 index, while XPS is down 20%. Standard Life is down 13% on the same basis.

The poor performance of UK life insurance stocks is due to the sector’s highest asset leverage, greater UK interest-rate volatility, and strong share-price gains in the prior year.

As of the end of 2025, Standard Life’s asset leverage ratio (including policyholder assets) is 178.7x, while Legal & General is 50.4x, and Aviva is 9.5x.

Bloomberg data as of Mar. 25 show that since the outbreak of war, break-even inflation has risen sharply; in the UK the increase is greater than in Europe and the United States, but it remains below the post-COVID peak.

Datastream data show that during the drawdown in the COVID period, the sector’s forward earnings per share fell by as much as 16%, while the STOXX 600 index fell 27%.

Based on RBC’s estimates using end-2025 data, after adjusting for market volatility since the start of the year, the solvency ratio is still above the target range. Munich Re leads with 295%, with a target range of 175-220%, while Standard Life is at 175%, the tightest point within the 140-180% range.

The sector’s average forward dividend yield is 7%, with a payout ratio of 64%. RBC said: “HNR1, MUV2, ALV and CSN stand out for their strong dividend records, with an average payout ratio of around 55%, which provides confidence in the sustainability of dividends.”

Bloomberg data show that as of Mar. 23, the sector’s 12-month forward P/E is 11.4x, above the 10.5x long-term average. Individual stock P/E ratios range from Conduit Holdings’ 6.1x to Admiral’s 13x.

RBC said the biggest downside risk is still “a severe recession in which long-term bond yields fall and credit defaults rise,” and it expects that in such a scenario, reinsurers will outperform the broader market, while life insurers will underperform.

This article was translated with the assistance of AI. For more information, please see our Terms of Use.