On May 21, Chubb revealed its board's approval for a substantial $7.5 billion share repurchase program, joining other insurers like Travelers, which has a $5 billion buyback plan. This move reflects a broader trend where insurers are revisiting stock buybacks as a strategy to boost earnings per share by reducing the number of shares outstanding.
However, analysts from Bank of America, led by Joshua Shanker, caution that these buybacks could ultimately harm shareholder value in the long run.
They note that while similar strategies were effective two decades ago when buybacks were executed at or below book value, current buybacks are occurring at two to three times book value, raising concerns about their potential dilutive effect on long-term capital. Chubb, Hartford, and W.R.
Berkley are all trading above their 10-year average book values, indicating that the current buyback environment may not be as favorable. The report also highlights that while some companies like Arch Capital have successfully managed buybacks, others, such as AIG, have focused on repurchasing shares at book value.
Travelers has indicated that its financial health supports both buybacks and dividends, while Chubb's CEO, Evan Greenberg, expressed confidence in the company's stock being undervalued. As the insurance market softens, investors are advised to scrutinize management's capital allocation decisions rather than solely focusing on earnings per share metrics