2025: Navigating macro & cycle dispersions

1. Interest rate impact: We deep-dive on company impacts for 2 interest rate scenarios: 1. -100bps, 2. UBS' macro base case identifying geographic dispersion. We provide EPS, OCG and Solvency impacts. US geared stocks should hold up better than Europeans, and sector solvency is resilient.
2. Excess yield attraction: We highlight sector excess dividend yield (above risk free) attraction.
3. Operational growth: We analyse operational growth trends, detailing pricing expectations across key sub-sectors.
4. IFRS17 metrics: We provide IFRS17 CSM valuation & debt leverage analysis.
5. Credit risk: Sector remains resilient, but we provide asset risk sensitivity.
6. Regulatory debates: We detail key debates, including the Danish Compromise, listing out bancassurance deals/JVs in EU within our coverage.

We remain balanced on the sector. We recognise some favourable operational dynamics, best identified by above-cycle EPS growth targets being outlined by Multi-lines. However, a number of these are closer to the end than the beginning, and we see increasing risk of lower yields (particularly in Europe) that could lead to lower EPS/OCG and Solvency which we would expect to act as a headwind. The sector is trading on 10.2x one year fwd P/E, a 19% discount to the market, c.5ppts tighter than pre-pandemic averages. The dividend yield of 5.5% offers some more optimistic hope, but we appreciate this is also tighter than historical levels and well below the banks yield.