Total shareholder return (TSR) for the global reinsurance industry had remained below the cost of equity on average over recent years, according to a new note from Boston Consulting Group (BCG).
In its Reinsurance in Focus: The 2022 Insurance Value Creators Report, said that although the average had been ‘disappointing’, strong TSR performance is possible regardless of whether a reinsurer is located or its business mix.
It said: “Over the ten years from 2012 through 2021, reinsurers’ average annual TSR of 14.5% eclipsed that of all sectors of primary insurance (property and casualty, multiline, and life and health). In recent years, the impact of natural catastrophes has put pressure on reinsurers’ TSR.
“Even so, their average annual TSR of 8.1% over the five years from 2017 through 2021 still surpassed that of all primary insurance sectors—except for property and casualty. However, comparing the top-quartile performers in reinsurance with those in the global insurance industry, we found that reinsurers’ outperformance was driven by cash flow contributions (dividends and share buybacks) and favourable multiples, not growth in tangible book value (TBV).”
It added: “Other comparisons are less favourable. Only one reinsurance company is among the top quartile of insurance value creators by five-year TSR. And looking across industries, reinsurers’ five-year average annual TSR of approximately 8% was well below the average of 15% for the S&P 500 and placed reinsurance 27th among the 34 industries tracked by BCG.”
BCG’s report had a number of other conclusions.
It said that the average annual TSR for reinsurers has exceeded that of primary insurers, generally, over five- and ten-year horizons. It said that the impact of natural catastrophes reduced reinsurers’ average annual TSR over the five-year period, but it still exceeded that of primary insurers, excepting property and casualty companies.
Also in the report was that BCG’s conclusion that growth boosts TSR for the top performers across the industry, whereas the contribution of TSR drivers is more balanced for reinsurers and that TSR performance over a decade for the largest listed global reinsurers was generally solid.
