While many insurers have repurchased shares in recent years, P&C insurers might more effectively deploy capital through a multi-asset class investment strategy, says Jared Klyman at GSAM Insurance Asset Management.
Insurers have emerged from the financial crisis with stronger balance sheets and risk-based capital (RBC) ratios near 325 percent on average, compared with about 250 percent pre-crisis.1
But insurers now face a new challenge: the persistent low yield environment, combined with the short duration of P&C portfolios, is putting pressure on the investment income contribution to earnings. This, in turn, is affecting return on equity (ROE) and, potentially, share price performance. Despite a challenging 2011 for P&C liabilities, accumulated earnings and improved 2012 pricing and claims activity have resulted in greater levels of shareholder equity and stronger capital ratios.
Insurance company management teams assess how to deploy capital most efficiently. They may seek organic growth, acquisitions, capital-intensive investment strategies, or they may return capital to shareholders via share buybacks.
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Goldman Sachs, share buy backs, investment services, insurers