European insurers are frequently lumped together with banks in "financials" screens, but they need a distinct set of metrics — combined ratio and solvency ratio chief among them — that don't apply to banks at all. A bank's core risk is credit and duration mismatch; an insurer's core risk is underwriting discipline and reserve adequacy. Screening both with the same filter set misses what actually distinguishes a well-run insurer from a poorly-run one.
Last updated: July 2026.
Why insurance needs its own screening framework, distinct from banks
EV/EBITDA and operating margin: As with banks, these standard industrial metrics don't translate — insurers don't have a comparable revenue-to-operating-income structure, and their core economics run through underwriting results and investment income, not operating margin in the conventional sense.
Debt/EBITDA and leverage ratios: Insurers hold large investment portfolios funded by policyholder premiums (technical reserves), which isn't leverage in the way industrial company debt is. Applying a standard leverage screen to an insurer misreads its balance sheet structure entirely.
Even bank metrics don't transfer directly: P/B and ROE are relevant to insurers too, but the profitability driver behind them is fundamentally different — underwriting results and investment returns, not net interest margin.
The right metrics for screening European insurers
Combined ratio (for property & casualty insurers)
Combined Ratio = (Incurred Losses + Expenses) ÷ Earned Premiums
The core underwriting profitability metric for P&C insurers. A combined ratio below 100% means the insurer is generating an underwriting profit — earned premiums exceed claims and expenses, before any investment income is even considered. A ratio above 100% means the insurer is paying out more in claims and expenses than it collects in premiums, relying on investment returns to be profitable overall.
- Below 95%: Excellent underwriting discipline
- 95–100%: Solid, profitable underwriting
- 100–105%: Underwriting loss, offset (if at all) by investment income
- Above 105%: Weak underwriting discipline — worth investigating pricing adequacy or claims reserve trends
Solvency ratio (Solvency II, EU-specific)
Under the EU's Solvency II regulatory framework, insurers must maintain capital above a calculated Solvency Capital Requirement (SCR). The Solvency ratio (eligible own funds ÷ SCR) is a standardised, regulator-mandated measure of financial strength unique to European insurers.
- Below 150%: Below the comfort zone most large insurers target; worth scrutinising
- 150–200%: Solid capital buffer
- Above 200%: Strong capital position, sometimes signalling excess capital that could be returned to shareholders via buybacks or special dividends
This is one of the more genuinely useful sector-specific disclosures in European equities — it's regulator-defined and broadly comparable across EU-domiciled insurers, unlike some other financial metrics that vary more by accounting choice.
Price-to-Book (P/B) and Return on Equity (ROE)
The same core valuation framework used for banks applies, with the same interpretation: P/B below 1.0 signals the market doubts sustained profitability at or above cost of equity, while ROE measures whether that profitability is actually being delivered. For insurers specifically, ROE is driven by the combination of underwriting profitability and investment portfolio returns, rather than net interest margin.
Life insurers vs. P&C insurers: different metrics dominate
Property & Casualty (P&C) insurers are best screened primarily on combined ratio and reserve adequacy trends — the underwriting cycle is the dominant driver of results.
Life insurers are better screened on embedded value metrics (a life-insurance-specific measure of the present value of future profits from existing policies) and solvency ratio, since life insurance economics run over much longer time horizons than P&C underwriting cycles.
A blended "insurance sector" screen that doesn't distinguish between these two business models risks comparing fundamentally different economics on the same scale.
Building a European insurance screen
P&C underwriting quality screen:
- Combined ratio < 98% (consistent underwriting profit)
- Solvency ratio > 170%
- P/B < 1.2
- Sort by: combined ratio ascending
Capital-return candidate screen (insurers with excess capital likely to return to shareholders):
- Solvency ratio > 200%
- Dividend yield > 4%
- ROE > 10%
- Sort by: solvency ratio descending
Where European insurance value tends to cluster
UK and continental composite insurers: Large, diversified insurers spanning life, P&C, and asset management often trade at persistent discounts to sum-of-the-parts valuations, a recurring theme in European insurance investing.
Nordic and German specialty insurers: Smaller, more specialised underwriters — reinsurance, niche commercial lines — sometimes carry disciplined combined ratios with less analyst attention than the largest pan-European composites.
Reinsurers: A distinct sub-sector (Munich Re, Swiss Re, Hannover Re among the largest) with its own cycle dynamics tied to global catastrophe losses — worth screening separately from primary insurers given the different risk profile.
Common mistakes when screening European insurance stocks
Applying bank leverage metrics to insurers, or vice versa. Insurance technical reserves and bank deposits are structurally different liabilities, and conflating the two sectors' screening frameworks misreads both.
Ignoring the combined ratio in favour of P/B alone. A cheap P/B with a persistently poor combined ratio can be a value trap — the market may be correctly pricing in ongoing underwriting losses that erode book value over time.
Not distinguishing life from P&C insurers. The two business models have different risk profiles, cycle dynamics, and appropriate metrics — a single blended "insurance" screen risks comparing incompatible economics.
Ignoring catastrophe exposure for P&C and reinsurance names. A single bad underwriting year following a major catastrophe event can distort a single-period combined ratio significantly — multi-year averages are more representative than any single year for this sub-sector specifically.
Bottom line
European insurance stocks need a framework distinct from both industrial companies and banks — combined ratio for underwriting discipline, solvency ratio for regulatory-defined financial strength, and P/B/ROE adapted to insurance-specific profitability drivers. Screening P&C and life insurers separately, given their genuinely different economics, produces a more reliable shortlist than a single blended financial-sector screen.
Frequently asked questions
What is a good combined ratio for European insurers?
Below 95% indicates excellent underwriting discipline; 95–100% is solid and profitable; above 100% means the insurer is relying on investment income to offset an underwriting loss. Multi-year averages are more reliable than any single year, particularly for P&C and reinsurance names exposed to catastrophe-driven volatility.
What is Solvency II and why does it matter for screening?
Solvency II is the EU regulatory framework requiring insurers to hold capital above a calculated requirement, expressed as the solvency ratio (own funds ÷ requirement). It's a standardised, regulator-defined measure of financial strength that's broadly comparable across EU-domiciled insurers, making it one of the more reliable sector-specific screening metrics available for European insurance stocks.
Should I use the same metrics to screen banks and insurers?
No — while P/B and ROE apply to both in a general sense, banks and insurers have fundamentally different balance sheet structures and profitability drivers. Banks should be screened with metrics like net interest margin and CET1 ratio; insurers need combined ratio and solvency ratio specifically, which have no bank equivalent.
What's the difference between screening life insurers and P&C insurers?
P&C (property & casualty) insurer economics are dominated by the underwriting cycle and are best captured by combined ratio. Life insurer economics run over much longer time horizons and are better assessed through embedded value metrics and solvency ratio. Screening both sub-sectors with the same criteria risks comparing incompatible business models.
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