Insurer shares score with increasing dividends

Overall, however, the current situation is anything but easy for insurers. As large investors, they are gradually benefiting from the higher interest rates. At the same time, however, they are struggling with high inflation, which is driving up claims costs.

According to DZ Bank analyst Thorsten Wenzel, reinsurers are probably better at passing this on to customers by means of price increases than primary insurers: “The capitalization of the large listed insurers is excellent, which is why they can continue to pay attractive dividends and often buy back shares.” The analysts name a clear favorite for investors who therefore want to invest in insurance shares.

The Allianz share has recently increased significantly

According to the data provider Bloomberg, a good two-thirds of the analysts at Allianz recommend buying the shares and around one-third recommend holding them. There are currently no sell recommendations.

It is certainly positive for investors that the group considers the case relating to the wrong speculation of the subsidiary AGI in the USA to be closed. The associated penalties and compensation payments once again reduced net income, which at 6.7 billion euros was only slightly higher than the previous year.

However, this does not result in any reductions in the dividend. The annual general meeting is to approve an increase of 5.6 percent to EUR 11.40 per share in the spring. That would put the dividend yield at over five percent.

At the current price of 215 euros, the analysts also believe that the share still has upside potential in the almost double-digit percentage range – even though the Dax group’s paper has already gained 38 percent since an interim low last September.
Berenberg analyst Michael Huttner, who raised the price target to EUR 309 after the publication of the annual figures, is particularly optimistic. The valuation is currently below the five-year average. Although Huttner reduced his profit estimates for the following years, he also emphasized that he had seldom experienced the group with such confidence as he does now.

Because despite numerous challenges, Allianz ended 2022 with a record operating profit of 14.2 billion euros and significantly exceeded analysts’ expectations. Sales rose by around three percent to almost 153 billion euros.

In our view, Allianz has high inflation well under control in property-casualty insurance. Jochen Schmitt, analyst at Bankhaus Metzler

“In our opinion, Allianz is in good shape operationally,” says Jochen Schmitt, an analyst at Bankhaus Metzler. “In our view, Allianz has high inflation well under control in property-casualty insurance.”

The result in life insurance was well above analysts’ expectations, writes Deutsche Bank analyst Hadley Cohen. He is also satisfied with Munich’s property business: “We are of the opinion that these are very solid results that give a clearly positive outlook – especially in property and casualty insurance.”

Huttner von Berenberg sees Allianz on the right track to increasing earnings per share by five to seven percent annually by 2024 – as envisaged by the group’s strategy. In 2022, however, the increase was only 2.4 percent.

Axa is the clear favorite of financial professionals

Axa, the second largest European insurer after Allianz, is even higher on the analysts’ popularity scale. Here, more than four-fifths of the financial professionals advise buying the share, the rest to hold.
In addition to a dividend yield of almost six percent, investors can also look forward to a new share buyback program worth up to 1.1 billion euros, which is coming sooner than expected, according to Bank of America’s Sinclair.

It also shows that the entire group continues to perform well. Analyst Philipp Kett from the investment bank Jefferies on Axa

At Allianz, too, Berenberg analyst Huttner had speculated about a new share buyback shortly before the figures were announced. This has not been realized, but this is primarily due to the fact that the previous program of up to one billion euros is still running.

What the analysts particularly like about Axa is that the insurer has raised its profit targets. The French expect earnings per share to increase by more than seven percent annually for the period 2021 to 2023. So far, there has been talk of the upper end of the range of three to seven percent.

Analyst Philipp Kett from the investment bank Jefferies assumes that this forecast is more relevant to the outlook for Axa shares than the new share buyback program. “It also shows that the entire group continues to perform well,” writes Kett in his analysis.

In 2022, however, net profit fell by eight percent to 6.7 billion euros. It was thus below the expectations of the analysts. One reason was rising market interest rates, which pushed down the value of the insurer’s lower-yielding bond holdings. According to Axa, the burden was 482 million euros. In addition, the insurer wrote off the minority stake in the Russian insurer Reso Garantia.

Gross premiums, on the other hand, rose by two percent to 102.3 billion euros. Axa achieved higher premium income in property and casualty business and above all in health insurance. They declined in the life insurance and reinsurance division Axa XL. Axa XL had recently reduced the natural catastrophe covers in particular.

All in all, the analysts expect the Axa share to have a price potential similar to that of Allianz for the next twelve months. Since the turn of the year, the paper has already gained a good nine percent.

Zurich falls in the analysts’ favour

The analysts at Zurich Insurance Group are somewhat less confident, with the majority recommending holding the share. Two fifths of the experts give a buy recommendation. According to Bloomberg, two analysts have put the Swiss share on the sell list. That could be related to the fact that the stock is currently valued at a little more than 11 times the earnings expected for 2024 – and thus slightly higher than Allianz and Axa.

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The insurer had done well in the past year. Operating profit climbed 12 percent to $6.5 billion. This is the highest value since 2007. However, the bottom line is that profits fell to $4.2 billion, which was partly due to weaker investment income.

Nevertheless, Zurich wants to pay 24 francs per share nine percent more dividend than in the previous year, which would correspond to a dividend yield of over five percent, as with its competitors.

For 2023, DZ Bank analyst Wenzel, who advises holding the share, assumes that worsening macroeconomic conditions could affect new business in life insurance. How inflation affects claims costs in liability business will be relevant for the price of Zurich shares.
“In 2023, the implemented price increases in corporate customer business should lead to an improvement in insurance,” writes Wenzel. However, Zurich recently increased prices in this segment more slowly.

The insurer itself assumes that the results will increase, particularly in property and casualty business with private customers. Here, too, Zurich is relying on price increases and reduced inflationary burdens. According to Deutsche Bank analyst Cohen, however, the competitors are more likely to benefit from this: “This speaks more for Allianz and Axa than for Zurich.”

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