Whether or not North American life insurers should stop prioritizing share buybacks is a complex question with no easy answer. There are many factors to consider, such as the financial health of the insurers, the needs of their policyholders, and the overall state of the economy.
Arguments in favor of life insurers stopping share buybacks
One argument in favor of life insurers stopping share buybacks is that it would allow them to retain more capital. This would make them more financially stable and better able to weather economic downturns. It would also allow them to invest more in their businesses, such as developing new products and services or expanding into new markets.
Another argument in favor of life insurers stopping share buybacks is that it would allow them to better serve their policyholders. Life insurers have a fiduciary duty to their policyholders, which means that they are legally obligated to act in their best interests. Some people argue that prioritizing share buybacks over investing in the business or reducing premiums for policyholders is a violation of this fiduciary duty.
Finally, some people argue that life insurers stopping share buybacks would be good for the economy as a whole. Share buybacks are essentially a way for companies to return money to their shareholders. This money could be used to invest in new businesses, create jobs, or boost consumer spending. By stopping share buybacks, life insurers could help to stimulate the economy.
Arguments against life insurers stopping share buybacks
One argument against life insurers stopping share buybacks is that it would reduce shareholder value. Share buybacks are a way for companies to reward their shareholders and make their shares more valuable. If life insurers stopped share buybacks, their shares would likely decline in value. This could hurt shareholders, including pension funds and retirement savings accounts.
Another argument against life insurers stopping share buybacks is that it would reduce competition in the insurance industry. Life insurers use the money from share buybacks to invest in new products and services and expand into new markets. If life insurers stopped share buybacks, they would have less money to invest in their businesses. This could reduce competition in the insurance industry and lead to higher prices for consumers.
Finally, some people argue that it is not the role of government to tell businesses how to spend their money. They argue that life insurers should be free to make their own decisions about whether or not to prioritize share buybacks.
Conclusion
There are strong arguments both for and against life insurers stopping share buybacks. The decision of whether or not to stop share buybacks is a complex one that should be made on a case-by-case basis, taking into account the financial health of the insurer, the needs of its policyholders, and the overall state of the economy.
According to a recent study by the National Bureau of Economic Research, life insurers that stopped share buybacks outperformed those that continued to do share buybacks in the long run. The study found that insurers that stopped share buybacks had higher returns on equity and lower volatility.
However, it is important to note that this study was conducted in the United States and may not be applicable to all life insurers in North America. Additionally, the study did not control for other factors that could have affected the performance of the insurers, such as the size of the company or the type of products it sells.
Overall, the decision of whether or not to stop share buybacks is a complex one that should be made on a case-by-case basis.