Leaving aside the hole left by the last hurricanes, insurance companies’ P&L accounts tell the story of a sector which has not suffered much in the context of zero interest rates.
In opinion of Alphavalue’s anlaysts, despite a certain amount of volatility, “the strength of the rise in the insurers’ profits is impressive.” They explain:
The financial performance or profitability ratios are less clear, with ROEs of around 10%, due to a duplication of the capital base (shareholders funds) from the floor reached during the financial crisis.
This duplication has been achieved via retained earnings, which has not really affected the sector’s capacity for paying dividends (€20 billion in 2017 vs €10 billion in 2010).
The new regulation regarding the use of standard models for the evaluation of risks or the questioning of the current commercial models will not change investor appetite over the next 1-2 years. Analysts should also remember that the implementation of Solvency II is in the very long-term.
We believe an insurance company runs less of a risk in a context of zero interest rates than of a financial crisis. The message is that it’s probably an interesting sector to hold in a portfolio. From the current levels, we give it a 6-months’ upside potential of 6.5%
