Criticism follows last week's global stock slide
Analysts have poured scorn on share buy-back schemes following last week’s slide in global stock markets.
They criticised director share sales made immediately after share repurchases, as well as the use of debt to finance repurchasing.
This called into question Benfield’s recent issue of a £300m debt facility, used in part to finance a £150m share repurchase scheme. Following this, US chief executive Paul Karon sold £1m of his personal holding.
UK listed general insurers known to have announced buy-back schemes in the past year are Amlin, Beazley, Brit, Hiscox, Jardine Lloyd Thompson and Kiln.
John Hatton, managing director of corporate finance at Fitch, said: “When equity markets are declining, you shouldn’t be buying your own shares back.”
Jack Zwigli, chief executive of Audit Integrity, a US company that assesses the risk of fraudulent accounting by listed companies, warned that big share repurchases, coupled with executives selling major blocks of options, would be a “red flag” on any company’s assessment.
Further to this, he said companies that got into debt in order to buy back shares would further aggravate their negative rating.