Analysts at Deutsche Bank expect fairly limited direct impacts to European insurers from tomorrow’s US election but sees some potential implications for carriers in the US, including a possible post-election M&A rebound.

The polls suggest it’s going to be a tight race between Vice President Harris and former President Trump, with analysts warning that the final determination could be prolonged due to recounts and the potential for disputed results in certain states.

With polls set to close on November 5th, 2024, Deutsche Bank has commented on where it sees potential implications for insurers in Europe and the US.

“European insurers on the whole have limited exposure in the US – though there are some exceptions (e.g. Aegon, Zurich, reinsurers). Overall, we believe the direct impacts from the elections this week will be fairly limited, whilst indirect impacts (such as from financial markets) could have more of an effect,” says Deutsche Bank.

For European insurers, analysts highlight corporate taxes, tariffs, social inflation, and financial markets as potential impact areas.

On corporate tax, analysts note that Kamala Harris has proposed to lift the rate from 21% to 28%, whilst Donald Trump proposes a reduction to 15%.

“European insurers with a higher proportion of business earnings in the US are likely to outperform under a Trump victory, but underperform under a Harris victory,” explain analysts.

On tariffs, analysts state that although insurance is a service business, tariffs could still lead to indirect impacts on European carriers.

Social inflation has been a hot topic in the US for some time now, and as explained by analysts, insurers in Europe do not see this changing anytime soon.

“We do not think the election outcome will improve this issue in the short term, given that tort reform is mostly addressed at state-level in the US,” says Deutsche Bank.

Financial market impacts are expected but the potential outcomes vary depending on the results of the election.

“Net net, higher US growth, stocks, and yields would be mildly beneficial to top line, investment income and solvency ratios for European insurers, though higher yields could have a short-term negative impact to flows of those with fixed income asset management arms (e.g. Allianz),” say analysts.

According to the Deutsche Bank US insurance team, a Trump presidency with a Republican Congress could see US stocks and yields rise, along with stronger GDP growth so long as there’s no associated trade war. If Harris wins the election with a Democratic Congress, US stocks are expected to fall, with yields likely to drop initially before gradually rising again as the market shifts to risk-off mode.

Analysts feel that if Harris becomes President but fails to have control of Congress, market volatility would be minimised in the medium-term, but warns of the potential unwind of the ‘Trump trade’ rally. At the same time, analysts believe that a Trump win but without Congress, US stocks and yields could still rise but less so than with a Republican sweep.

On corporate tax implications for US insurers, analysts state that under a Trump victory, domestic stocks would likely outperform due to the potential for a lower rate, with a Harris win viewed as potentially negative for the market.

Commenting on tariffs, analysts see potential direct and indirect effects, but note that tariff implementation is not guaranteed under a Trump win, which adds some complexity.

“Tariffs could adversely affect insurers operating in targeted regions, such as Chubb in China or MetLife in Mexico, due to the correlation between GDP and insurance premiums. However, given these companies’ diversified operations, investor concern regarding the magnitude of this impact appears limited.

“Tariffs could contribute to higher US inflation, a scenario which would generally benefit insurance brokers. They gain from the pass-through effect on premiums without absorbing the burden of claims inflation. However the 2018-19 tariffs did not appear to significantly impact US consumers, as retailers absorbed most of the inflationary impact through reduced profit margins. Therefore, new tariffs might not necessarily be inflationary for the US,” says Deutsche Bank.

Insurance sector M&A is another area that could be impacted by the election. Analysts allude to Goldman Sachs’ CEO comments that year-to-date M&A volumes are 13% below 10-year averages, and equity issuance volumes are 27% below 10-year averages. While there could be numerous reasons for the slowdown, analysts feel it is part due to a tougher stance towards M&A from the current administration.

“A Trump victory could lead to personnel changes at the FTC, fostering a more favorable environment for domestic M&A and IPOs by encouraging risk-taking and unleashing “animal spirits”. Conversely, a Harris victory could suppress transaction activity for another four years,” explains the firm.

On social inflation, Deutsche Bank underlines the fact neither Harris or Trump have addressed the issue, and that since tort reform is largely a state-level issue, federal action is unlikely to materially impact this trend in the near term.

Regulation and budget deficit are two other areas that have the potential to impact US insurers. On the former, analysts feel the outcome of the election will likely have a limited direct impact on insurance firms given their primary regulation is at the state level, and the absence of gubernatorial elections in major insurance-relevant states in 2024.

Discussing the budget deficit and implications for interest rates and insurers, analysts state that both sides want to enact a fiscal stimulus, although have different views on where to spend money.

“A sweep by either party would increase the likelihood of an expanding budget deficit. All else equal, this implies higher long-dated bond yields, benefiting insurers’ net investment income, particularly within the life insurance sector. This positive impact remains contingent on yields staying below levels that trigger credit cycle concerns,” says Deutsche Bank.

Ultimately, analysts at Deutsche Bank’s US insurance team believe that a Trump win with a Republican Congress would see life insurers in the US be best placed to outperform, while a Harris win with control of Congress would likely see the insurance sector outperform as the market shifts to risk-off mode.

A Trump win without control of Congress, according to analysts, would lead to similar market movements as with a Republican sweep, but with a lower magnitude. Therefore, analysts would expect life insurers to outperform. But a Harris win without control of Congress, according to Deutsche Bank, would likely see the insurance sector underperform the broader market, and the insurance brokers outperforming within the insurance space.

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