Goldman shifts toward value in EU insurance, favors PE cheap mid-caps

Investing.com -- Goldman Sachs has turned more selective on European insurance stocks following a strong year of performance that lifted the sector’s PE ratio to the 95th percentile of its 20-year range. 

In a note dated Wednesday, analysts outlined a preference for companies trading at historically lower valuations, particularly those with retail P&C exposure and limited USD risk.

The report categorizes stocks into three valuation groups based on their current PE relative to historical levels: PE Cheap (below 50th percentile), PE Mid (50–75%), and PE Expensive (above 75%). 

“Buy” ratings are concentrated in the PE Cheap category, with five of six names receiving positive recommendations. 

These include upgrades for NN Group (AS:NN) and Admiral. NN’s €61 target reflects its 2026 operating capital generation yield of 14%, a 9.3% estimated capital return, and 7–8% annual OCG per-share growth through 2028.

Admiral’s 3,573p target factors in rising U.K. motor prices and a strong position in price comparison channels, with earnings forecasts 11% above consensus.

SCOR, Beazley, and Lancashire also received Buy ratings despite exposure to commercial P&C and P&C reinsurance, as Goldman sees valuation more than compensating for business mix risks. 

Phoenix remains a “sell” due to high leverage and declining shareholder equity despite being in the PE Cheap group.

Among PE Mid names, Hiscox (LON:HSX) was upgraded to Buy based on its 50% retail earnings mix and strongest projected EPS and top-line growth among London Market peers. 

Hannover Re (OTC:HVRRY) and M&G were also rated “buy,” with M&G offering capital-light exposure and limited FX risk. 

L&G was downgraded to Neutral on concerns over capital return sustainability and annuity market competition.

In the PE Expensive group, Zurich was downgraded to Sell. The stock trades at the 98th PE percentile, with earnings skewed toward commercial P&C in the US, where margins face pressure. Its CHF542 price target implies 2% downside. 

ASR was downgraded to Neutral after a 27% rally, and Mandatum and Sampo remain Sells despite strong retail exposure, due to low or declining capital return yield projections.

Goldman’s ratings now show a clear tilt toward small and mid-cap names, with 7 of 9 “buys” fitting this profile. 

The brokerage’s valuation framework centers on 2026E price-to-adjusted tangible book value (P/ATBV), adjusted for return on ATBV, earnings growth, and excess capital.

Sector-wide, European insurance has outperformed the Stoxx 600 by 21% over the past 12 months. 

Dividend yields, while more aligned with historical norms, remain a key support. Still, with an uncertain macro backdrop and elevated sector valuations, Goldman prefers a selective, value-oriented approach focusing on earnings resilience and capital deployment.