CAP's insurance industry research annually examines executive compensation and financial performance across two segments of the industry, including 19 of the largest Property & Casualty (P&C) and Life & Health (L&H) Insurance companies and continues CAP’s research in this industry. Our analysis covers 2023 outcomes and the median revenue of the companies in our sample is approximately $20B.

Key Takeaways

• 2023 performance results were stronger compared to 2022 results. Top-line growth and Operating Income were both up at median for the full company sample, with P&C companies outperforming L&H companies overall. This is a reversal from 2022, where P&C companies performed worse than L&H, following a strong year in 2021.
• 2023 bonus payouts were above target for both industry segments and just slightly above payouts for 2022.
• The median increase to CEO total target compensation for 2023 was 5.8%, with more companies increasing target bonus opportunities than last year.
• While operating performance was stronger in 2023, share price returns for the year were weaker, with the insurance industry also underperforming the S&P 500. However, so far in 2024, this has reversed.

2023 Performance: A Rebound from 2022 After a Challenging First Half

Among all companies reviewed, Revenue growth was stronger in 2023 than 2022, and in line with 2021. This was driven by P&C companies in particular, with Revenues increasing +11.5% year-over-year at median in 2023 compared to +4.2% growth in 2022. Premium growth for P&C insurers also remained strong in 2023. Revenues for L&H insurers declined -1.1% in 2023, following a flat year in 2022.

Net Investment Income rebounded strongly in 2023 for the full sample of companies, up +12.1% at median after a -6.6% decline in 2022.

Operating profitability improved year-over-year, with Operating Income and Operating ROE increasing +9.9% and +1.5 percentage points, respectively, for the full sample. This is an improvement from the 2022 declines in operating income performance, following exceptional 2021 results. Operating Income for P&C insurers increased +21.9% in 2023, compared to +5.1% growth posted by L&H insurers in the study.

For 2023, median Operating Income ROE for P&C companies was +11.0% and for L&H insurers, +12.8%.

In 2023, catastrophe loss (CATs) performance for P&C insurers was mixed by company. At median, CATs increased slightly (+2.6%). Three companies had an increase in CAT losses of more than +50% vs. prior year. Cumulative reported CAT losses among the 10 P&C companies increased from $12.3B in 2022 to $15.7B in 2023. On average, P&C insurers in our sample recorded CATs for the first half of 2023 that were about 63% of the full year total, with seven companies reporting higher CATs in the first half than the second half.

A recovery in operating performance in the second half of the year lifted share prices for insurers, reflecting a +6.4% gain in 2023 for the group of insurers. Share price performance lagged 2022 (an +18.4% increase), and 2021 (a +27.4% increase). This also compares with the median 2023 median return of the S&P 500 of +12.6%.

2023 CEO Pay for Performance: Above Target Bonus Payouts and Slightly Above 2022

Bonus payouts for insurance companies generally paid out above target in 2023, and slightly above 2022 payouts but below 2021. In our sample, 11 of 19 total companies paid bonuses above target, three paid out bonuses below target and five companies paid out bonuses near target. Except for 2020, these insurers have tended to pay above target bonuses over the past five years. In 2023, six companies paid above 150% of target, up from three in 2022.

The distribution of 2023 payouts (above target, below target, and around target) was similar for P&C and L&H companies.

Bonus payouts for 2023 were more aligned with financial performance for the year compared to 2022 outcomes, which saw above target payouts for lower financial performance.

2023 LTI Performance Plan Payouts

Performance-based long-term incentive awards for the 2021-2023 period generally paid slightly above target, comparable to prior award cycles. P&C payouts were higher than those of L&H companies for the second consecutive year.

Payouts for the 2021-2023 award cycle correlate with TSR performance. The results show that of the full group of companies, the half that outperformed the median TSR of all companies had an average payout of 171% of target, and those that underperformed the median TSR had an average payout of 105%. This is consistent with prior performance periods as well, with the top half of performers having average LTI payouts of 146% of target for the prior three performance periods, compared to 110% of target for the bottom half performers.

2023 CEO Target Pay: Modest Increases

Median CEO target total direct compensation (TDC) for 2023 increased modestly for most companies in the sample. The median increase in TDC for all CEOs in the sample was +5.8% in 2023, which is fairly similar to increases in 2022, yet reflecting an uptick in the number of companies making increases to CEO target bonuses. In 2023, 11 of 19 companies increased target bonus opportunities in 2023 compared to five in 2022. Eight of 19 CEOs received a salary increase in 2023 (same as last year) and 13 of 19 received an increase in the LTI target award (16 last year).

Share Price Performance and 2024 Outlook

Relative to the preceding two years, share price returns among these insurers were weaker in 2023, despite generally stronger financial performance. Median total shareholder return (TSR) was +6.4% in 2023, with L&H companies (+10.1%) outpacing P&C company returns (+5.3%). 2023 TSR was lower compared to the strong returns of 2022 (+18.4%) and 2021 (+27.4%), and below the prior five-year average return (+14.7%).

So far in 2024, share price performance among the insurance industry has been up, with median TSR for the full company sample up +15.6% through May 31, 2024, already higher than share price performance for the full year in 2023 and outpacing the median share price performance of the S&P 500 Index constituents of +5.5%. Performance expectations for 2024 are generally positive, though significant catastrophic events can impact results significantly for individual companies. The US economy avoided a recession in 2023 despite significant interest rate increases to subside inflation and fears of recession for 2024 are declining. For the P&C industry specifically, the pricing environment remains “hard” and an increased focus on underwriting practices should offset some of the pressure on overall income levels.

Annual Incentive Plan Design Summary

Annual incentive plans for the companies in the study were generally based on financial metrics tied primarily to short-term earnings. The most common annual incentive financial metrics used by the insurers in our study include Operating Income (used by 89% of cos.), followed by Operating ROE (42%) and Revenue/Premiums (32%).

Approximately 63% of companies in the sample include an assessment of strategic factors in the determination of CEO bonuses. Seven companies fund a discrete portion of the bonus (between 10% and 30%) based on specific strategic goals, three companies incorporate strategic goals on a discretionary-basis, and two companies use it as a modifier. Strategic goals/topics included by the companies in our study cover the following areas:

1. Operational goals (58% of companies with disclosed strategic metrics) – new business investments; corporate initiatives; digital technology; leadership planning; etc.
2. ESG goals (58%) – DE&I; sustainability; employee engagement; human capital; etc.
3. Customer-based metrics (25%) – net promoter score; customer survey results; straight-through processing; etc.

We expect companies will continue to consider ESG factors in annual incentive plans. Currently, seven of the 12 insurance companies that include strategic factors in their incentive plans include at least one ESG or DE&I factor in their assessment. Given recent developments and some increased concern around interpretation of DE&I measures, the processes around DE&I, incentive programs and related disclosure, have had more scrutiny and internal monitoring. ESG and DEI continue to be focal points for Boards however. We believe that while companies may be more reluctant to add new DE&I measures into incentive plans, the current practice of using such measures will continue.

Further, we are seeing companies try to be more prescriptive around defining success for ‘strategic’ goals and objectives. An understanding of what is deemed to be sufficient progress or exceeding expectations on strategic efforts, helps provide clarity for participants during the performance period and for Committees at year end when achievement is being assessed and plan funding is being determined.

Long-Term Incentive Plans

All companies studied use long-term performance-based incentive plans. Notably, compared with our study five years ago, long term performance awards represent approximately 70% of the overall LTI program (compared to 63% five years ago), and over 70% for CEOs (61% five years ago). Stock options are used by 47% of the companies and time-based RSUs are used by 53% of the companies, the mix approximates 16% and 12% for CEO, respectively.

Stock options are currently used more among the P&C companies (6 of 10) compared to L&H companies (3 of 9). On the other hand, time-based RSUs are only used by a few P&C companies (3 of 10) contrasted by the significant use among L&H companies (7 of 9).

Within performance plans, the most commonly used metrics are Relative TSR (68%) and Operating ROE , reflecting an increase from 47% to 63% of companies since the last study (63%). Eight of the thirteen companies using TSR include it as a discrete award component (weighted approximately 50% of the award on average, and ranging between 25% to 100% weighting), and five companies use it as an award modifier. Just three companies measure relative performance on a financial metrics (ROE, book value, combined ratio, investment portfolio). 72% of companies use a mix of absolute and relative metrics, which helps provide a balanced program and one that can weather volatile periods, by maintaining a linkage between executive rewards and both executive actions and the shareholder experience.

Unlike annual incentive plans, individual or strategic performance are not prevalent in LTI plans. Only two companies use a non-financial metric, both of which use a DE&I measure.

For questions or more information, please contact the CAP Insurance Team:

Melissa Burek
Partner
[email protected]
212-921-9354

Roman Beleuta
Principal
[email protected]
646-532-5932

Kyle White
Associate
[email protected]
646-568-1161

Matthew Schwarcz
Analyst
[email protected]
646-568-1174

CAP’s Insurance Sample

P&C Companies

• Allstate Corporation
• American International Group, Inc.
• Chubb Limited
• Cincinnati Financial
• CNA Financial Corporation
• Hanover
• Hartford Financial Services Group
• Progressive Corporation
• Travelers Companies, Inc.
• W.R. Berkley.

Life & Health Companies

• Aflac Incorporated
• Genworth Financial, Inc.
• Globe Life
• Lincoln National Corporation
• Manulife Financial Corporation
• MetLife, Inc.
• Principal Financial Group Inc.
• Prudential Financial, Inc.
• Unum Group