Industry SectorsInsurance

Insurance companies' outlook fair

28 Apr 2022 1 month(s) ago

Insurance companies are an important part of the stock exchange. How are they looking?

Insurance companies are often volatile investments, but an important part of investment diversification. Because they are big investors, improvements in interest rates, which seem to be coming, improves their earnings.

Credit Suisse says its order of preference in the Australian market remains unchanged; QBE (outperform), SUN, IAG (outperform), SDF, AUB, MPL (outperform, NHF (neutral).

“We remain constructive on the general insurance sector owing to continued industry tailwinds related to the hard cycle, with Outperform ratings on all the general insurers. Recent interest rate rises should add further earnings tailwinds through higher fixed income investment yields.

“QBE continues to be our top pick, with the most earnings momentum and greatest exposure to the hard rate cycle of all the general insurers, while still trading at appealing levels.

“We think recent weakness in SUN could present an opportunity especially given the recent spike in fixed income yields which should provide a strong tailwind for both insurance and bank earnings (with a possibility of arresting the predicted NIM decline).

“We remain constructive on IAG which is still trading on undemanding multiples. We are also positive on the ongoing tailwinds for the private health insurance industry, with an Outperform rating on MPL and Neutral rating on NHF while recognising potential upside surprise as overseas travel re-opens at pace.”

Credit Suisse says rising rates could be a significant tailwinds for the General Insurers: “Fixed income yields increased dramatically this quarter, providing a strong tailwind for future earnings. We have adjusted our outer year earnings for the General Insurers accordingly.”

The insurers have been weak over the last three months relatiove to the overall market, and mixed over the last year, with QBE the stand out:

Credit Suisse is positive on future earnings prospects:

“Overall investment markets performed below our base assumptions in the quarter. We’ve increased outer year GI earnings by ~5/10% (Yr1/2) for the significant rises in interest rates in the period. Other earnings changes across the general and private health insurers were more modest.”


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