All too often, the pre-release is only pulled out of the IR “toolbox” when it looks as if results will be below expectations, or a surprise to investors. Pre-releases are valuable for that use, as I discussed last June.
But a pre-release might be even more useful when there is no surprise and it can reinforce that a company’s strategies for valuation creation are working.
The arguments in favor of giving investors a preliminary look at in-line results are unusually compelling this year-end. I suggest insurance companies give serious consideration to a pre-release during January, particularly companies that will be presenting at conferences before their release date. (We can leave for another day the discussion of whether companies should pre-release information every quarter – and what signals might be sent with pre-release timing.)
So what are my rationales for recommending pre-releases this quarter?
Insurance investors are very worried about a number of issues that they believe may lead insurance companies to report results below expectations. From my conversations with the analysts, and what I’ve read in the published research, the three that they consider most likely for year-end are:
- Unusual weather losses (or catastrophe losses for companies with international exposure)
- Swing from favorable to adverse development (discussed at length in my post “The Elephant in the Room”)
- Portfolio weakness (in both the equity and bond portfolios), leading to lower book value
And since those are very real concerns, some companies are likely to report results that have been affected by one or more.
For companies that are not being affected by these issues, putting early commentary in investor hands may help avoid being grouped with peers reporting weaker results!
Also, insurance companies – more than ever — need investors to understand the underlying fundamentals of their business – the strategies that will allow the company to excel in all markets. While the financial results are the “scorecard” of a company’s strategy, the numbers alone rarely give the additional insight that allows investors to identify those companies that may deserve a premium multiple.
But a quick look at the SNL calendar shows that about 60 insurance companies have already scheduled their earnings release and call for the first three weeks of February. During those weeks, the numbers often will take a front seat, and in depth attention will be given first to those companies reporting out-of-line results
For companies with in-line results, putting the commentary in investor hands before the crush of year-end reporting may improve mindshare – more important this year than ever!
So, What Should the “No Surprise” Release Say
Pre-releases – for any purpose — are entirely custom. There are no strict rules for the form or content, in fact there really aren’t even any specific expectations. They clearly are distinguished from earnings releases because they rarely have extensive tabular data. And the financial values that are included usually are described as “preliminary” or given in ranges (e.g., between $10 and $15 million).
For the “no surprise” release, I believe the content should parallel the commentary that an insurance company CEO would give on the quarterly conference call. In a series of quotes from management, the pre-release should summarize the (preliminary) results in the context of the company’s business strategy.
Alternatively, the content could parallel that planned for the Executive Summary of the MD&A. In an interpretative release that discussed the use of the Executive Summary, the SEC included this statement as part of its comments:
“A good introduction or overview also would provide insight into material opportunities, challenges and risks …
- on which the company’s executives are most focused for both the short and long term, as well as
- the actions they are taking to address these opportunities, challenges and risks.”
In my view, that’s a pretty good description of what might appear in the pre-release!
Filed under: Important ideas, Investor Relations, Messaging, Pre-releases | Leave a comment »