The direction of industry pricing was a key talking point during the first quarter’s earnings discussions. For several years, rates remained elevated as the pricing trajectory showed a level of resilience which surprised us. The narrative has since shifted, with questions now concerning just how quickly commercial rates will slow, and if we will see any easing in casualty rates which have been in a micro-cycle.
If the rate of pricing increases continues to decline, will insurance companies re-evaluate their capital position?
If insurers have excess capital, how might they look to deploy it? Will we see a wave of consolidation, or will companies step up capital returns?
With these questions and the latest market trends in mind, we decided to revisit our prior capital management analysis.
Our analysis shows that buybacks have rebounded modestly as the industry balances changes in the rate of pricing increases, valuation, and reserving challenges. It also shows that the return on capital is range-bound between mid-to-high single digits for different sub-groups.
Finally, sizable buyback authorizations are in place, affording insurers an alternative means of deploying capital during times of market volatility.
We expand upon these points in the following analysis.
Buybacks have rebounded in recent periods
As the chart below shows, insurance companies pulled back on buybacks after the first signs of firming arose in 2019. These trends continued through the Covid-19-impacted 2020. Note the modest tick up in 2022 while growth in net premiums written (NPW) declined, and the tick down in 2023 as questions arose around the extension of the hard market as loss costs continued to pressure the space.
On a trailing twelve-month (TTM) basis, buybacks are steadily approaching 2017 levels at about 3% of shares outstanding, ticking up from 2% in 2023.
Another factor that negatively impacts buybacks is the companies’ price-to-book ratios, which have continued to rise over the years as shown below using the S&P Insurance ETF as a proxy. Broadly, buybacks are accretive when the stock is trading at a discount and dilutive when trading at a premium. This influences companies’ willingness to buy.
The information above is presented by segment below, capturing the shift from before to after the Covid-19 pandemic.
One can see a degree of correlation with what repurchases should look like for different groups.
Specialty players – which include a number of E&S-predominant carriers – have continued to deploy in new opportunities. Primary players' repurchases have ticked up as pricing increases have moderated.
With the latest commercial lines pricing and E&S stamping data showing some pressure, we would not be surprised to see repurchases tick up among both primary and specialty players.
On the other hand, reinsurer/hybrids' repurchases have modestly picked up over the past few years due to the lack of a cycle-defining catastrophe event and are a key driver of the overall uptick we are observing.
Personal lines' capital returns have been minimal as the industry initially focused on getting its pricing right and then on expanding its top line.
With repurchases for our selection of companies at about 3% of shares outstanding, we anticipate this number to climb as pricing softens overall. The only likely offset to this would be continued adverse development of the old soft market and recent “hard market” years.
Capital return hovers in the mid-to-high single-digit range for most cohorts, or 10% in the aggregate
We have previously discussed the confluence of factors that impact capital deployment decision-making. Notably, included in this is the give and take between investors, management, and market opportunities.
Buybacks and dividends are among the key means of capital return. The table below looks at the median return on capital for select segments since 2019.
What immediately stands out is the mid-to-high single-digit range for several sub-segments. This is generally in line with other financials, such as life insurers, banks, and REITs, although the mix between repurchases and dividends is different.
For the Insurance Insider US Select, the mix is about 4% dividends and 6% buybacks, adding up to around 10%, or 9.5% rounded down as shown in the table, for TTM. However, the split varies across the segments due to differentiation in capital management strategies.
Please see the appendix for a company-level overview of this data and a list of companies included in each cohort.
Going forward, depending on the segment, there could be some near-term divergence between the groups. For example, if mid-year renewals disappoint or the hurricane season ends without material losses, buybacks could pick up among short-tail writers.
Large buyback authorizations leave room for capital deployment as pricing slows
The first chart we showed demonstrated a rebound in buybacks, but it should be noted that it does not paint the full picture. Many insurers and brokers still have significant buyback authorizations that can be leveraged should market conditions warrant it.
The table below provides a by-segment overview of repurchase value as a percentage of market cap as well as shareholders’ equity. For a carrier-level breakdown of these segments, please see the appendix.
Seven of the 26 carriers we considered had at least $1bn in remaining stock repurchase value. Of these seven, Chubb, Travelers, The Hartford, and AIG, which are included in the multi-line segment, had well over $1bn in room to buy more without seeking further board authorization.
Factors such as stock market resilience as well as commercial lines pricing can add nuance to the repurchase considerations. Generally, management would not want to repurchase a firm’s own stock if it is trading at a sizable multiple.
As we found in our last stock note, our Insurance Insider US P&C index has outperformed the S&P 500 this year, though the lead had shrunk to its smallest point since February and underperformed the S&P 500 in the month of May as the recovery from tariff volatility continues.
The latest pricing data from both surveys as well as carriers showed continued softening in the commercial lines market. In Q1 2025, CIAB’s pricing survey showed that average premium increases across all account sizes fell year-over-year to 4.2% versus 5.8% in the prior-year period.
So, if P&C stocks continue their walkdown as pricing slows, we would not be surprised to see an uptick in buybacks as a method of deploying additional capital.
In summary, although industry buybacks have increased, they have not done so at a level significantly different from the past few years. One of the offsetting factors we have discussed is reserve deficiencies. Apart from the “soft market” years of 2015-2019, we have also seen reserve adjustments for the recent accident years as well.
Our recent social inflation analysis also showed an exponential rise in ultimate losses as the industry grapples to understand this challenge. In theory, if there is a reserving hole, the excess capital number is lower than what is computed by comparing the premiums with the balance sheet capital.
This could limit the rebound in buybacks even if the rate of price increases continues to decline for commercial, E&S, or reinsurance segments.
Appendix
The following two tables below provide a company-level overview of buybacks as a percentage of shares outstanding for our select segments.
The table below shows capital return for our segments broken down to the company level. The Hanover Group's high capital return in 2019 was attributable to both accelerated share repurchase programs as well as elevated stockholder dividend payments totaling $389mn that year.
HCI Group’s high level of returns in 2022 was attributable to both a share repurchase program authorized that year as well as other buybacks associated with a conversion offer for convertible senior note holders.
The table below shows the value remaining to be repurchased by select firms.