A.M. Best Briefing: Insurance Industry Buybacks; Stocks Undervalued or Out of Ideas?

OLDWICK, N.J.--()--Total cash returned to shareholders by the 20 largest publicly traded insurance companies, measured by market capitalization, via company dividends and buybacks totaled USD 41.7 billion in 2014, which represents an increase of 61% over 2013, according to a new A.M. Best briefing. The Best’s Briefing, titled, “Insurance Industry Buybacks; Stocks Undervalued or Out of Ideas?” states that as overall profitability has rebounded from the financial crisis, insurance companies have been accumulating cash on their balance sheets with limited opportunities to achieve targeted hurdle rates. Therefore, insurers have increased their return capital to shareholders via stock repurchases.

This briefing looks at the 20 largest publicly traded insurance companies from the U.S. life/annuity, health and property/casualty industries and analyzes the return-of-capital activity specific to share repurchases. Stock buybacks for insurers in this briefing for 2014 totaled USD 29.2 billion, which is an increase of 79% over the prior year.

Insurance companies are holding onto a much smaller portion of their net income as they returned 76% of total net income to shareholders in the form of dividends and buybacks, with buybacks representing 70% of money returned to shareholders. The median payout ratio of dividends and buybacks has risen to levels not seen since before the financial crisis.

The briefing also states that insurance companies have not been particularly good at timing share repurchases over the past few years. Management has been increasing repurchase activity just at the point that price to book multiples have made this capital management activity more expensive. In fact, had the companies in this review used the same amount of money spent in 2014 to buy back stock during the lows of 2008, they would have repurchased 27% more stock then they could have purchased in 2014.

For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=236886.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Erik Miller, CFA, 908-439-2200, ext. 5187
Senior Industry Research Analyst
Credit Rating Criteria,
Research and Analytics
erik.miller@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Erik Miller, CFA, 908-439-2200, ext. 5187
Senior Industry Research Analyst
Credit Rating Criteria,
Research and Analytics
erik.miller@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com