Investors remain under the spell of the chaos surrounding US tariffs, but shareholders in the insurance sector remain comparatively relaxed. The industry is living up to its reputation of performing very well in turbulent times. Accordingly, stock market valuations in the spring were at higher levels than in other sectors. However, in some areas, things are starting to slip.

Since early March, when it became clear that US President Donald Trump was serious about announcing high tariffs, the 600 leading European insurers listed on the stock market have clearly distanced themselves from the Euro Stoxx 50’s top 50 companies. Between that announcement and the introduction of the general tariff regime on 3 April, insurance sector stock prices rose by 3%, while the Euro Stoxx 50 fell by 7%.

The insurance index’s outperformance continues but has been shrinking since 6 May. The changed outlook on individual stocks is noteworthy. Only five out of 23 analysts still recommend buying Munich Re’s stock. Caution is also evident with Allianz. Goldman Sachs downgraded the insurer to neutral on 20 May. The rationale: its price-to-earnings ratio of 12.3 is at the upper end of its historical range, whereas the 10-year average is 10.1.

Not all insurance stocks are being treated cautiously. Private bank Berenberg reports a strong general interest among investors in the insurance sector. But the broad stock market rally is thinning the air. For insurers, any stabilisation in tariff regulations makes other investments relatively more attractive.

Especially in the property and casualty sector, the smoke is beginning to clear after the inflation surge. Initially, insurers’ executives – as well as managers in the industry – were caught off guard. Property insurance premiums could only be increased with a time delay.

But profitability in property lines is now rising sharply. Auto insurance is creeping towards underwriting profits. The entire property insurance sector appears robust, as demonstrated by the example of Germany. When comparing combined claims and administrative costs to premiums, the industry’s combined ratio had already fallen below 95% last year.

This brings the sector close to the limits of its potential. In five-year snapshots since 2010, combined ratios stood at 98%, 96%, and 91%. The 91% in the exceptional pandemic year of 2020 – with low claims – was the best figure in two decades. As margins rise, competition typically intensifies. If the economy falters, insurers are affected less than other industries but demand will still decline.

There is no fundamental trend reversal yet. However, it is striking that prices in the UK auto insurance market have fallen after rising 30 to 50% in 2023. Whether the stabilisation observed in May holds remains to be seen.

As soon as the sector’s earnings outlook stabilises, insurers will busy themselves with mergers and acquisitions. Every board member has experienced how exhausting the last price cycle was. In some places, reserves are dwindling. Moreover, economies of scale are becoming more important in this business. Regulation hits smaller players particularly hard. And in Europe, insurers must compensate for shrinking core target groups aged 20 to 60.

Above all, size pays off because investment in data analytics becomes essential for success. Only by taking action can competition from product and price comparison sites be fended off. Pricing must also become more granular to secure profitability even in tough times. Size is becoming the trump card for insurers.