Global Insurers: Dividend Play or Alpha-Seeking?
Strong underwriting performance expected in 2H24. 1Q24 was a good start for the sector, evidenced by the key metrics of insurers under our coverage that surpassed market expectations. We expect the s...
Chief Investment Office - Hong Kong12 Jun 2024
  • Asia’s structural opportunities to drive lifers’ growth; P&C underwriting performance supported by repricing actions and stable combined ratio
  • Gains from high reinvestment yields expected to continue in 2H24 after multi-year lows and negative rates in developed countries
  • We prefer selective names with enhanced shareholder returns
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Strong underwriting performance expected in 2H24. 1Q24 was a good start for the sector, evidenced by the key metrics of insurers under our coverage that surpassed market expectations. We expect the strong underwriting performance to continue in 2H24. In the life segment, the Asia market will continue to lead in 2H24 with high double-digit growth in value of new businesses (VNB), mainly driven by Hong Kong, China, and ASEAN, with their fast-growing affluent and middle-class customer bases and huge protection gap.

In Europe, we expect rising demand for savings due to better policy returns and a low base effect, supporting single-digit growth in premiums for European insurers’ life segment. In the P&C segment, we expect premiums to expand due to repricing actions. We forecast single-digit y/y growth in 2H24 for European insurers’ P&C segment, offsetting pressure from economic slowdown across major markets. We also expect their combined ratio (COR) to remain stable, with an improvement in the expense ratio offset by a higher loss ratio, reflecting our cautious view on natural disaster losses.

Investment returns to increase as interest rates remain elevated. After multi-year lows and negative interest rates in major developed countries, 10Y government bond yields are expected to stay elevated in 2H24F compared to the 10-year average (est. 4.5%/2.6%/1.1% on average in US/EU/JP in 2H24 vs. the 10-year average of 2.3%/0.5%/0.2%, respectively), despite 50 bps in policy rate cuts expected in the US and EU in 2H24. We expect gains from higher reinvestment yields to continue accruing in average portfolio yields, with new money invested at rates higher than those of the current portfolio, translating into better investment results for insurers under our coverage.

Selective names with enhanced shareholder returns. In the past two quarters, most large-cap insurers have updated their capital management policies and payout guidance. Global and regional insurers under our coverage guided for a total payout target of c.75% based on core net profit/net free surplus generation, including the majority by dividend payout and the rest by share buybacks. Based on our estimates, global and regional insurers offer a c.3%-6% dividend yield supplemented by a c.1.5%-5% capital return yield. The resulting combined yield would range from 6.9%-8.0%.

We believe the market will continue to favour stocks that could surprise on the upside from capital returns, and that global insurers remain a good source of reliable and defensive yield. We are turning increasingly positive towards regional and Chinese insurers and believe they are good choices as both dividend plays and for alpha-seeking investors. Reasons for this include 1) secular growth opportunities in the Asian life insurance sector which allow regional and Chinese insurers to deliver superior growth ahead of global peers, 2) we are less concerned over the China property sector since the Chinese Government’s policy support has surpassed expectations, and 3) China insurers are offering an attractive dividend yield of >7%.


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