<div id="readability-page-1"><div><div>Key points:<ul><li>Insurance stocks, including IAG, Suncorp, and QBE, surged in 2024 with impressive returns of 54%, 44%, and 34%, respectively, and Morgan Stanley expects further growth in 2025</li><li>While pricing growth for insurers is slowing, premiums remain robust, and inflation is easing, supporting strong earnings growth and margin expansion</li><li>Morgan Stanley forecasts significant capital returns, with buybacks expected for IAG ($350M), Suncorp ($625M), and QBE (US$300M), preferring QBE for better earnings consistency and capital management options</li></ul></div>Insurance stocks experienced a massive run-up in 2024, with names like IAG, Suncorp and QBE delivering returns (including dividends) of 54%, 44% and 34% respectively.Despite rallying to multi-year highs, Morgan Stanley says insurers can perform again in 2025. &#34;We think double-digit earnings growth, improving earnings quality and imminent capital management from all three insurers will drive the sector's next leg up,&#34; the analysts said in a note on Tuesday.GWP Growth to SlowPricing growth for insurers is slowing but remains robust enough to support healthy top-line growth, which continues to outpace claims inflation. According to Morgan Stanley's proprietary pricing survey, &#34;Australian home &amp; motor pricing appears to have peaked.&#34; The survey highlights that new home insurance premiums in December 2024 rose 5% year-on-year, while motor premiums declined by 3%.While the growth rate is decelerating, it’s worth noting that home premiums have surged 54% and motor premiums 56% since December 2021, showcasing significant cumulative increases over the past three years.Looking ahead to gross written premium (GWP) – a measure of the insurer's ability to generate revenue from underwriting activities – Morgan Stanley expects growth to moderate across the board.<ul><li>IAG to slow to ~7% in FY25 from 11.5% in FY24</li><li>Suncorp to ease to 8.5% in FY25 from ~14% in FY24</li><li>QBE to rise to 3.7% in FY25 from 2.6% as portfolio exits come to an end</li></ul>While pricing growth is slowing, input costs are also easing. Inflation in Australia and other developed markets has been moderating. Both Suncorp (SUN) and IAG have reported that Australian motor inflation had decreased to 5–10% by mid-2024, with home insurance inflation slowing to high single-digit or low double-digit levels. Additionally, reinsurance costs have declined by a high single digit in the January 2025 renewals. But Double-Digit Profit Growth RemainsWhat does moderating pricing mean for earnings growth? Premiums typically take 12–24 months to be fully earned. This dynamic is expected to support margin expansion, as net earned premiums (NEP) growth remains strong while inflation continues to slow. Morgan Stanley forecasts the strongest growth for Suncorp (SUN), with an expected underlying insurance profit growth of around 20% in FY25, nearly matching the high levels seen in FY24. Capital Return &#34;Imminent&#34;An imminent catalyst for insurers is the expected start of buybacks, following several years of strong profits and improved earnings quality, particularly due to well-managed catastrophe (CAT) costs in the past 6–12 months, according to Morgan Stanley. In FY25, the analysts forecast:<ul><li>IAG: $350 million buyback expected to resume with February 2025 results</li><li>Suncorp: $625 million buyback expected to start in 2H25 and continue into FY26</li><li>QBE: US$300 million (~A$485 million) buyback expected to begin with February 2025 results</li></ul>Stock PreferencesMorgan Stanley prefers QBE Insurance as the stock is trading at approximately 10x FY25 earnings while delivering &#34;better earnings consistency and presenting capital management options for the first time in several years.&#34;In order of preference and financial metrics:<div><table><tbody><tr><th>Ticker</th><th>Company</th><th>Rating</th><th>Target</th><th>Upside/Downside</th><th>FY26e PE</th><th>FY26e Yield</th></tr><tr><td>QBE</td><td>QBE Insurance</td><td>OW</td><td>$23.50</td><td>19%</td><td>9.3x</td><td>5.0%</td></tr><tr><td>SUN</td><td>Suncorp</td><td>OW</td><td>$22.10</td><td>13%</td><td>15.8x</td><td>6.3%</td></tr><tr><td>IAG</td><td>Insurance Australia Group</td><td>EW</td><td>$8.00</td><td>-7%</td><td>19.1x</td><td>3.9%</td></tr></tbody></table></div>Source: Morgan Stanley Research | Upside/downside based on share price as at 16/01/2025</div></div>

Morgan Stanley recommends investing in insurance stocks for earnings growth and capital returns, highlighting IAG, Suncorp, and QBE. Despite a slowdown in pricing growth, robust premiums and easing inflation support strong earnings. The firm forecasts significant buybacks: IAG ($350M), Suncorp ($625M), and QBE (US$300M). They expect double-digit profit growth, particularly for Suncorp, and prefer QBE for its earnings consistency. Overall, the insurance sector is poised for further growth in 2025, driven by improved earnings quality and capital management strategies.

Morgan Stanley says bet on insurers if you're after earnings growth and capital returns