Insurance sector: the worst should be past

The insurance sector has significantly underperformed the market since the Covid-19 crisis. Investors feared that the sector would be affected by the following three risks: risk of a sharp decline in profits; risk of balance sheet deterioration; and finally political and regulatory risk. All of these risks crystallise in the form of cancellation or sharp reduction in dividends, which are the main attraction of the sector. However, it seems that only the risk of a reduction in profits has materialised, and to a lesser extent than what was expected. Regarding balance sheets, they are still very solid because, on the one hand, the large groups have all faced the crisis with very high solvency ratios, and on the other hand, because markets have quickly recovered. Finally, the fear of governments forcing insurers to reimburse uninsured damages is also exaggerated. This would constitute a dangerous precedent damaging the credibility of the entire legal system. In the end, we believe that the insurance sector should gradually catch up its relative underperformance with respect to the global market.