At 8%, the insurance industry total shareholder return (TSR) demonstrates resilience compared with other sectors since the onset of the pandemic, but nonetheless falls short of meeting investors’ cost of equity, continuing a trend of recent years, according to BCG analysts.
The five-year annual TSR for insurance from 2018 through 2022 is an underwhelming 3.9% and compares with an all-industry average of 6.6%, analysts noted. The global insurance industry’s market capitalization remained stagnant at about $2.2 trillion over this period.
Five-year TSR varies widely, both geographically and by industry segment, with a range of more than 40% to –20% for individual companies. But overall, only 33% of insurers delivered TSR that was greater than the cost of equity, and 18% had negative TSR, BCG explains.
According to the company’s report, the Americas, mainly the US, saw the strongest TSR performance across the three regions, led by particularly strong performance in its property and casualty (P&C) sector, whose market capitalization expanded by 13%.
Market capitalization dropped by 15% in Asia-Pacific and was broadly flat in Europe, the Middle East, and Africa. Almost all of the expansion of market capitalization in the US was concentrated in the P&C segment, which increased by 37%.
While Asia-Pacific saw the greatest amount of capital generation (and about two-thirds of global capital generation), the region’s TSR disappointed because of a material drop in market capitalization stemming from a broad-based decline in price to tangible book value (P/TBV) multiples.
Asia-Pacific multiline insurers, a segment concentrated in a few large players , were responsible for much of the decline the report highlighted.
Over the long run, book value growth and cash flow are the main contributors to TSR, but in the medium term, changes in the P/TBV multiple are what mater matter a lot more analysts noted.
“Overall, insurers in Europe, the Middle East, and Africa stagnated, with low or negative capital generation and modest changes in TBV. TSR came primarily from cash contributions. We saw a TSR polarization in this region, as P&C and reinsurance expanded at levels similar to the Americas (albeit at lower scale) while the market caps of life and health companies dropped by 17%,” the report stated.
With an annual TSR of 10%, the reinsurance segment is the one that performed the best globally over the past five years -it is also the smallest in terms of TBV -, analyst highlighted.
Industrywide, relative TSR performance across companies fluctuated strongly over the past ten years. Only 16% of the companies in the top quartile during the period from 2013 to 2017 maintained their position in the years from 2018 to 2022; four out of five fell into the second, third, or fourth quartiles.
On the bright side, analysts concluded that, for companies that fell, “TSR has almost no memory, so they have the opportunity to rebound. Those at the top, meanwhile, are under greater pressure to maintain their position.”
