Analysts from Barclays Capital have turned their outlook on the European insurance and reinsurance sector to negative, from neutral, citing the significant and growing headwinds that companies in the market face.
On property and casualty insurance and reinsurance, the analysts say “property and casualty underwriting returns (both primary and reinsurance) are stalling, and growth is elusive,” making the outlook also negative for the P&C space.
On life insurance and reinsurance Barclays analysts see both capital and earnings headwinds, as low-interest rates in particular threaten players in the life space. The analysts also note that Solvency II remains a threat and potential drag on earnings.
While the fundamentals behind insurance and reinsurance are heading towards record low levels, insurers and reinsurers are trading at or near record highs, a disconnect which means that Barclays struggles to see positive value in the sector.
Barclays analysts see earnings and solvency headwinds combining to threaten many in the European life and P&C insurance and reinsurance sectors, meaning that they are being especially selective about those they recommend to investors.
In P&C, the analysts are looking for solid balance sheets and underwriting stability as signs of companies worth recommending. They note however that dividend and capital repatriation to shareholders has been driving sentiment in the space, but that this could be eroded as earnings come under increasing pressure.
It’s a further sign of the challenging conditions taking hold of insurance and reinsurance, swaying opinions of analysts who follow the sector closely.
The underlying conditions in the market have been masked by strong results and high levels of capital return, but as expected this cannot continue forever and increasingly opinions are turning negative on the prospects for many companies in the space.