Multiple insurance giant options on the ASX are available for Aussies to invest in, such as Insurance Australia Group Ltd (ASX: IAG) shares, Suncorp Group Ltd (ASX: SUN) shares, and QBE Insurance Group Ltd (ASX: QBE) shares.

Each of these businesses has benefited in the past couple of years from inflationary conditions because they have led to an increase in premiums and higher returns on their investment portfolios, with their lower-risk assets (such as bonds and cash) delivering a stronger yield.

With inflation now much lower than it was in 2022 and 2023, investors may wonder what could spur the share prices of IAG, Suncorp, and QBE higher.

The broker Morgan Stanley has outlined what it thinks could be the next catalyst for these ASX financial shares.

Incoming share buybacks?

According to reporting by The Australian, Morgan Stanley's Andrei Stadnik believes the major insurance companies of IAG, QBE, and Suncorp could announce share buybacks of more than $1 billion this month.

The newspaper reported that Stadnik said:

We think an imminent catalyst for the insurers is that all three are set to announce on-market buybacks with Feb-25 results after several years of strong profits and improving earnings quality.

Coupled with mid-cycle trading multiples, we think insurance stocks should continue to outperform.

What are the benefits of a share buyback?

A share buyback occurs when companies decide to buy some of their shares from shareholders (either through the ASX or off-market), reducing the number of shares outstanding.

Reducing the number of IAG shares means the value of the IAG business is spread across fewer shares, which should increase the underlying value of the remaining shares.

A share buyback can help with certain shareholder-related statistics such as earnings per share (EPS) and return on equity (ROE).

If the company sticks with the same dividend payout ratio, its total dividend would be spread across fewer shares, which could mean a larger cash dividend and possibly a more appealing dividend yield, depending on the share price.

IAG share price snapshot

As the chart shows, the Insurance Australia Group share price has risen 46% in the past year. That compares to a rise of 26% for QBE and a 42% increase for Suncorp shares.