Barclays cuts ratings on key European insurers, citing limited upside

Investing.com -- Barclays (LON:BARC) downgraded several major European insurers, citing limited earnings momentum and reduced potential for capital return. 

The brokerage moved Allianz (ETR:ALVG) SE and Swiss Re (OTC:SSREY) to “underweight” and Zurich Insurance Group (OTC:ZFSVF) to “equal weight,” reflecting concerns over full valuations and external risks.

Allianz was downgraded as Barclays’ earnings estimates for 2025–2028 average 2% below consensus, with 7% downside to the €325 target price. 

Analysts cited limited upside to EPS given stretched expectations for property and casualty revenue growth and margin expansion. 

Barclays described the company as fully optimized, with its recent DAX outperformance lifting the stock above fundamentals.

Swiss Re also received an “underweight” rating. Its stock trades at 10.5x 2026 estimated earnings, 22% above its five-year average. 

Barclays said the valuation reflects low Swiss interest rates rather than sector-leading fundamentals. 

Issues include reserve adequacy and underperformance in life and health reinsurance. The price target was cut from CHF136 to CHF128.

Zurich was moved to “equal weight” from “overweight,” with Barclays citing USD weakness and uncertainty surrounding U.S. tax rule S899. 

These pressures affect shareholder payouts, which are funded 60% by U.S. cash flows. 

While Zurich’s dividend yield offers a 460 basis point spread over local sovereign yields, the highest in the sector, Barclays sees only 1% upside to its CHF580 target price.

AXA and Munich Re remain the only overweight-rated large-cap insurers. AXA is expected to accumulate €2 billion in excess holding cash by 2027, beyond its €4 billion target buffer, providing scope for additional returns. 

Barclays raised its price target to €44.50, noting the stock’s 11% total shareholder return forecast is well above the sector’s 1% average. 

Munich Re’s diversified model and low leverage support capital flexibility, with up to €14 billion in equity and debt headroom. Barclays increased its price target to €600.

Generali (BIT:GASI) remains “underweight.” Barclays pointed to inflated valuations tied to board-related stake building and strategic uncertainty. 

It flagged downside risks from a proposed Banca Generali sale and a joint venture with Natixis, both viewed as value-destructive with limited earnings accretion.

Across the sector, Barclays sees little room for upward revisions to earnings or shareholder returns. 

Dividend yields average 5%, supplemented by 1.5% in capital returns. However, upside is limited for companies that have completed multi-year optimization programs.

Retail-focused names like Allianz and Generali, once proxies for the European P&C trade, now offer little margin expansion potential beyond what is priced in.

The brokerage maintains a “neutral” rating on the sector, favoring mid-cap names for better value. 

Analysts noted that the rising cost of doing business in the U.S., due to FX pressures and potential tax changes, poses an additional risk to earnings for European insurers with large U.S. operations.