The brokerage believes the market is likely to continue to demand a very high risk premium for holding insurance shares, in light of the combined threat of significant economic uncertainty and the sector's high gearing toward risky assets.
"We do not expect the sector risk premium to narrow until economic visibility improves, which is unlikely until second-half 2008," the brokerage added.
Bear Stearns says the market is currently being driven more by fear than fundamentals, and investors buying insurance shares must be prepared to tolerate significant volatility. The brokerage added that it preferred non-life insurers, as companies in this group have stable earnings view, strong cash generation and low asset risk.