• Why Investor Relations?

    For more than 40 years, the CFA Institute has advocated for efficient capital markets that are ethical, transparent, and provide investor protections. One of the Institute’s guiding principles states: “Investors need complete, accurate, timely and transparent information from securities issuers.”

  • Why InsuranceIR?

    Insurance companies face unique challenges when communicating with investors and InsuranceIR is uniquely suited to help with industry-specific support.

    The primary purpose of this blog is to offer specific ideas on how insurance companies can achieve that objective.

    The supporting pages offer information on InsuranceIR's capabilities and how firm principal Heather J. Wietzel can help your company improve your investor communications.

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  • Copyright 2012

Should IROs Care? – FASB’s newest proposal for insurance contract accounting

Discussion of changes to insurance contract accounting has been going on for over a decade. With its newest proposal, the Financial Accounting Standards Board is asking for comments on an updated proposal for standards that likely would be effective on January 1, 2018.

That sure does seem very far away.

I think that extended time frame – and the number of times this topic has come up and then been relegated to the back burner – has contributed to a lower profile for this most recent update. Continue reading

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Q2 Calls — Are You Ready For Your Hour In The Spotlight?

We are halfway through 2012 and it is earnings season again. As always, managements and investor communications teams are crunching and drafting to get ready for their respective “big day.”

But remember that investors hear from all companies during earnings season. So, how can your management team be best prepared for its turn in the spotlight – that one hour during earnings season when insurance-investor attention is focused on your company?

Well, insurance companies differ enough that there is no absolute, “one size fits all” recommendation. But I have visited with a number of insurance analysts and investors in recent weeks (and read my share of industry commentary). I believe there are some common themes on the radar screen this quarter.

Before I turn to those themes, I wanted to briefly comment on how the call can be used to best effect. Continue reading

(Wow) Accounting Standards from the IR Perspective

This past Monday, I had the privilege of attending the National Investor Relations Institute’s (NIRI) annual liaison meeting with Financial Accounting Standards Board (FASB) board members and staff. FASB and NIRI organize the session each year to offer investor relations practitioners a chance to “discuss standards from the investor communications perspective.”

The Session was Excellent

FASB allotted three hours for the liaison meeting, giving us plenty of time for the formal agenda as well as informal conversation and Q&A. About 15 people attended from FASB, including two board members and staff members with a variety of responsibilities. The FASB group shared updates on their initiatives and projects. Among the subjects covered were convergence to international accounting standards (IFRS), the disclosure framework project, revenue recognition, leases and financial instruments.

Those of us attending with NIRI gave feedback to FASB about the challenges we face communicating with investors. Our comments generally focused on how the accounting framework helps or hinders our ability to present historical and prospective information so that investors can make informed investment decisions or recommendations.

Specific to the Insurance Industry

We had the opportunity during the session to spend a few minutes learning more about the work FASB is doing in conjunction with the IASB on proposed changes to the accounting for insurance contracts. (See the Update on Insurance Contracts – a Joint Project of the IASB and FASB – for full details of the project.)

I believe the discussion of the insurance contracts project was positive. It provided an opportunity to highlight – from the investor relations perspective – some of the potential problems the proposed changes might create for insurance-sector investor communications.

The FASB group was very interested in our input and acknowledged the high volume of investor feedback they have received about the insurance contract proposal. They stressed how open they remain to feedback on the topic. Continue reading

Cycle? What Cycle?

I’m back from last week’s NYSSA Insurance Conference where I listened to 16 presentations from a cross-section of small- and mid-cap insurance companies. It was a great opportunity to spend time with corporate and investor friends, both at the conference and socially.

Since my return, I continued to listen to fourth-quarter conference calls and read some of the related research as I mull the investor relations implications of what appears to be a shift in investor thinking on the insurance sector.

What is Changing?

From what I’ve seen and heard, I believe that insurance-sector investors are concluding that the pricing cycle has been “broken” and that a broad-based insurance-sector recovery is unlikely in the next few years.

Investors who have decided the cycle is broken can be expected to move their primary focus away from attempting to determine the timing of sector changes.  They are more likely to focus on determining which companies have the business model to survive (and prosper) with pricing at current levels. They will be most interested in the characteristics that distinguish each company and on how management will achieve improved return on equity and growth in book value through its own actions and choices.

Regardless, for investor relations purposes, it doesn’t matter if the pricing cycle is really broken or not, what matters is investor perceptions and related information needs. (And whether the cycle is actually broken is well outside the purview of this blog.)

Why Did I Come to This Conclusion? Continue reading

Pre-release WITHOUT a Surprise?

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?

Investor Concerns

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!

Mindshare

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!

In Defense of IR Departments

Twice in the past week, larger companies have faced premature disclosure of material news because of poor website controls and procedures. The specifics have been widely reported (IRWebReport’s posts offer a summary of the various events).

As a former corporate IRO, I feel compelled to step up to the table to defend over-worked investor relations teams. These teams are being forced to cobble together less-than-ideal web solutions because of a lack of resources (both time and money) and the low priority their needs are given by corporate IT departments. When problems like these arise, the IR team may share some of the responsibility, but they do not deserve full blame.

From my view, it is more important that these recent events serve as a wake-up call to C-suite executives and board members.

Isn’t it time company’s give investor relations departments access to the right resources — internally and externally — if only to avoid unnecessary damage to corporate reputations. (We won’t dwell on the myriad of positive reasons for giving IR additional resources, e.g., improving valuation, etc.)

What’s an Insurance Company To Do?

We’re entering another quarterly reporting season and it continues to feel as if every glimmer of good news for the property casualty insurance market is offset by something in the bad news column.

So, (from an investor relations perspective) what’s an insurance company to do?

In my opinion (and there’s research to support this view), the greatest potential upside lies in doing even more to educate investors about your company’s strategy. Better communication isn’t a way to mask weak performance. But better communication can reduce uncertainty and bolster management credibility, arguably a company’s most important intangible asset (see “Be Forthright to Counter Prevailing Mood” for more on this concept).

To get the “educating” ball rolling, here are some ideas for consideration:

  • Premiums – Not all geographies and industries are equal in this economy. Help investors understand your company’s business by distinguishing its markets. Consider highlighting lower-than-average unemployment in your company’s key states or relevant trends in targeted industries. This post gives a few other ideas.
  • Inflation/deflation — Be ready for questions about inflation/deflation. Be prepared to talk both about how these trends might be affecting reserving for current losses and whether a change in your company’s inflation expectations has been a driver of reserve releases for recent accident years. (Also, be set to discuss the potential effect on your company’s investment results.)
  • Judicial climate – Six months ago, I talked about medical malpractice carriers being asked about “slippage” of tort reform in various states. The questions focused on pressure on awards and settlements (longer term) and defense costs (shorter term). In recent months, I’ve started to hear similar questions asked of insurers with broader commercial liability exposure.
  • Reserves – This is another topic I’ve addressed before, but insurance investors need to understand reserve trends to be confident in a company’s strategy. This April post offered a summary of potential disclosures.
  • Muni portfolio – Investors are still sensitive to the default risk of some municipalities. Last quarter, I talked about data companies might consider making available to investors to mitigate their concerns.

These ideas offer a starting place for most property casualty insurance companies.  I would welcome the opportunity to discuss specifics ways in which your company could help investors better understand its business strategy.