Labour government to have minimal real impacts on earnings & capital for UK re/insurers: Deutsche Bank

With Labour winning the UK election, a report from Deutsche Bank has observed that the new government will have minimal real impacts on earnings & capital for the country’s re/insurers.

“Our view about Labour’s manifesto policies remains unchanged from our first take – i.e. we expect minimal real impacts on earnings and capital for the UK insurers,” Deutsche Bank’s report noted.

It continued, “Thus whilst today’s results are unlikely to change valuations in the short-term, we believe UK insurers remain attractively valued. We like the total return profiles at L&G, M&G, DLG, and Sabre from a mix of re-ratings and 9-11% distribution yields, and stay positive on Lloyd’s names (Beazley in particular), based on the strong margin and yield environment and inexpensive valuations.”

Citing its UK economists, Deutsche Bank also said it does not expect Labour to disrupt the start date for rate cuts, and continues to expect two cuts in 2024 (August and November) with further cuts in 2025-2026 taking the terminal rate to 3% at the end of 2026.

“10-year gilt projections are expected to drop off marginally over the coming quarters, but stay near 3.9% given supply and QT expectations,” the report added.

It went on, “The risks to this under Labour could be easier fiscal policy and/or higher near-term investment. Based on the Labour Manifesto, policies are expected to add 0.15% to GDP by 2029/2030 – unlikely to change much to UK insurers’ growth trajectories.

“Sterling is far less sensitive to fiscal and political shocks than it was two years ago, with little expected for GBP given the results.”

Beyond the headline result, the risk for sterling could come from the fact that Nigel Farage (Reform) has won the seat in Clacton, as per the report.

“However, it does not look like the market had built in any material positive risk premium into the pound ahead of the election outcome on other scenarios (e.g. the possibility that the pro-EU Liberal Democrats could have formed the official opposition) – as such, sterling should be broadly unchanged following the results,” Deutsche Bank concluded.