General insurers and life & pensions providers must balance the dual pressures of capital growth and liquidity to meet their obligations. For life companies in particular maintaining sufficient liquidity to pay pensioners is fundamental. Similarly general insurers must balance growth and claims liquidity. Dividend-yielding securities – especially equities – therefore play a pivotal role in their portfolio management. Of course, maximising dividends return potential is not only sound portfolio management; it is a core fiduciary duty.
Renewed importance of dividend returns
Dividend income is critical – as the numbers demonstrate. A comprehensive 2025 study shows that from 1940 through to 2024, dividends contributed an average of 34% of the S&P 500’s annual total return, with price appreciation providing the remainderi. Another global report confirms that since 1926, dividends have accounted for approximately 31% of total return, while capital gains accounted for 69%ii.
Compounding further amplifies this impact. One long-term analysis shows that a portfolio with reinvested dividends since the 19th century would have grown 500 times larger than one without reinvestmentiii.
These return dynamics help explain the rising allocation to European equities. Insurers and pension funds across the US and Europe are increasing allocations to the region, drawn by higher dividend yields and broader diversification. 2025 data shows, for instance, a Euro Stoxx 50 dividend yield of approximately 2.56%, compared with a parallel S&P 500 dividend yield of around 0.94%. European markets, with their typically higher dividend payouts compared with the US, therefore remain a critical focus for investors seeking to strengthen liquidity positions.
Why insurers should care about Withholding Tax
In many tax jurisdictions, dividend and bond interest payments made to foreign investors are subject to withholding tax (WHT), applied by the country where the security is domiciled. While designed to secure tax revenue at source, this can result in double taxation if no treaty exists between the investor’s home country and the issuing market.
To prevent this, most developed countries have established double-taxation treaties, allowing investors to avoid double taxation and reclaim a portion of the tax withheld. The reclaimable amount can be significant. For example, a US insurer investing in Swiss equities faces a 35% withholding rate but can typically reclaim 20%, meaning more than half of the tax deducted is recoverable.
How much is being missed
Research indicates that around 20% of reclaimable WHT goes unclaimed worldwide, representing an estimated $16 billion in lost returns each year. In the case of European equities, unreclaimed withholding tax reduces performance by roughly 34 basis points – around 10% of total dividend income – according to TaxTec’s proprietary analysis.
For insurers managing globally diversified portfolios, these recoveries matter. Every basis point contributes to solvency ratios and the ability to meet long-term policyholder commitments. Yet WHT is often an overlooked source of return leakage.
Why so much still goes unrecovered
Historically, low recovery rates have been driven by complexity, bureaucracy and limited internal expertise. More than 3,000 double-taxation treaties exist worldwide, each with their own documentation, eligibility rules and procedural requirements. On top of this, claim processes are often manual, slow and administratively heavy, involving multiple forms, supporting documents and strict deadlines for each jurisdiction.
Many firms also lack the specialist knowledge needed to interpret local tax rules or manage unfamiliar filing procedures. Even where expertise exists, weak process controls can cause claims to fail due to missed deadlines or incomplete submissions.
Although technology and automation can now streamline much of the process, adoption is still by no means universal– leaving significant recoveries unrealised.
How insurers can protect customer outcomes
The emergence of new technologies is now making it easier to manage the complexities of WHT reclaims. Those technologies are transforming the process (sometimes incorporating elements of AI) – automating the bureaucratic tasks that once slowed claims and using machine learning to handle unstructured data and complex interactions.
To capture these benefits, insurers should work proactively with their asset and fund managers to ensure that maximising WHT recovery is treated as a core fiduciary responsibility. Doing so not only improves portfolio performance but directly strengthens outcomes for policyholders.
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