Deutsche Bank sees strong outlook for European insurers amid sector rotation

Investing.com -- Deutsche Bank (ETR:DBKGn) Research maintains a constructive stance on the European insurance sector, citing compelling growth prospects and opportunities for capital returns. 

Despite the sector’s 12% year-to-date outperformance versus the broader market, analysts remain optimistic, pointing to renewed interest in European financials, strong sector fundamentals, and solid capital management practices.

Following the bank’s annual Global Financials Conference and first-quarter 2025 earnings releases, analysts revised their models, investment theses, risks, and valuations for European composite, Dutch, and U.K. life insurers. 

The sector currently trades at 12.6 times estimated 2026 earnings and yields 5% in dividends.

As part of a recalibration of stock recommendations, Deutsche Bank upgraded NN Group (AS:NN), Phoenix, and Prudential (LON:PRU) to “buy” from “hold.” 

The upgrades reflect attractive relative valuations, improved management guidance, and potential for shareholder returns through buybacks. 

In contrast, Allianz (ETR:ALVG), a.s.r., and Legal & General (LON:LGEN) were downgraded to “hold” from “buy.” While the downgraded firms remain operationally robust, analysts see limited upside to their target prices and better value elsewhere in the sector.

Key themes emerging from the research include a solid outlook for composite insurers. This group is expected to deliver high-single-digit earnings per share growth, with payout ratios around 75%. 

Property and casualty segments are projected to benefit from pricing tailwinds established in 2023 and 2024, while life insurance earnings may see a resurgence as investor attention returns to that area.

Dutch insurers stand out due to their favorable valuation metrics. Deutsche Bank highlights their strength across distribution capabilities, capital generation, and free cash flow yields, making them an attractive sub-sector within the broader European landscape.

U.K. life insurers also drew positive commentary, with analysts noting the potential for medium-term top-line expansion across multiple business lines. 

Additional upside may come from exposure to private markets, offering possible enhancements to bottom-line performance.

The outlook for reinsurers and Lloyd’s players is more measured. While property-catastrophe rates are softening as expected, underwriting discipline remains intact. 

The upcoming 2025 hurricane season is likely to be a critical determinant for future pricing trends and valuations in this segment.