The broader property and casualty (P&C) insurance trend is expected to remain steady through 2025, with personal lines and brokers likely leading on the earnings growth front, however, sector valuations are becoming less attractive as earnings become increasingly bifurcated, according to analysts at Morgan Stanley.
While the P&C sector has held up better than expected since Liberation Day, analysts believe its valuation relative to the S&P 500 is not as attractive.
“A notable callout would be the insurance brokers, who are likely to see more earnings volatility, higher competition, and a more mixed pricing environment, but valuations remain high when compared to the past 10 years,” said Morgan Stanley.
“The key debate should shift towards the ability to maintain margin and growth in order to justify the current valuation. For now, we continue to prefer personal lines for the improving fundamentals, and reinsurers for attractive valuation.”
Analysts highlighted continued growth and margin expansion in personal lines, which they believe will be durable through 2025, supported by earned pricing. This is being offset by a weaker commercial underwriting environment, driven by elevated social inflation concerns and mixed pricing dynamics.
While reinsurance businesses have performed well, most reinsurers also have exposure to commercial casualty segments where they face similar challenges as primary commercial insurers.
In life insurance, core results were above expectations in the first quarter, and Morgan Stanley expects a rebound in the second half of 2025.
This strong performance was driven by group business, life insurance, wealth management, and expense savings. However, on a reported basis, VII headwinds, annuity flows, and other macro factors have led analysts to believe earnings recovery will be more back-end loaded in 2025.
Longer term, the outlook will depend on how spread compression plays out, the growth and competitive dynamics of the RILA segment, and the durability of net flows in various retirement-related businesses. Macro volatility year-to-date has increased uncertainty around these fundamentals.
That said, Morgan Stanley views the overall sector valuation as attractive, supported by a strong capital position to withstand smaller shocks. Analysts see opportunities in better-positioned life insurers such as Equitable, Corebridge, Voya, and MetLife.
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