Insurance companies are buying back their own stock in hordes. Maybe they shouldn't

On May 21, following its annual meeting Chubb announced that its board authorized a new $7.5 billion share repurchase program. In January, Travelers authorized a $5 billion share buyback, bringing its share repurchase capacity to $7 billion. The Hartford and broker W.R. Berkley are also embarking on a program to purchase their own shares. Insurers are revisiting an old playbook from past down cycles, repurchasing stock to prop up earnings per share by shrinking the share count. But Bank of America analysts said those buybacks could destroy shareholders' value over the long term. In a research note published May 26, analyst Joshua Shanker and his team acknowledged the strategy worked 20 years ago, when insurers, similar to today, were stymied by "stagnating revenue growth, flattish earnings and declining cash flows." Back then the buybacks were cheap: They were at, or below, book value. Now, insurers are paying two to three times book value, which makes those buybacks potentially dilutive to long-term capital — even if they boost EPS in the short term. A look at the numbers shows that Chubb, Hartford and W.R. Berkley are all trading at book values well above their 10-year averages. Bank of America said sometimes buybacks do work. The firm pointed to the discipline shown by Arch Capital purchasing $8.5 billion in buybacks over 20 years at a cost on average of 1.2x its book value. …