• 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
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SEC Stresses Consistency

I’ll admit I have a tendency to obsess about ways investor relations can leverage time already being invested by a company in other activities. I look for these opportunities because management time is a limited commodity, particularly at smaller companies. And it is at those smaller companies where management involvement in investor communications is most critical.

One of the best opportunities companies have to create efficiencies in the communications process is by being consistent — making strategic use of their required (and time-consuming) SEC filings and leveraging that time to simplify development of other communications. Plus, investors read the SEC filings, and trade on the information they contain. Investors rely on the filings whether or not those documents share the strategic messages contained in presentations, news releases and other written and verbal communications.

I nearly jumped up and down for joy at NIRI’s National Conference when consistency (and IR’s appropriate role in SEC filings) was highlighted in the keynote address given by Meredith Cross, Director, Corporation Finance.

But rather than editorialize, below is a transcription of a section of Director Cross’s speech.  The excerpt includes her segue into the use of non-GAAP data, which is a topic of particular interest to insurance companies.

At the beginning of her remarks, she included the normal SEC disclaimer that these were her beliefs, not necessarily those of the commission.

Follow the link to read what Director Cross said on consistency: Continue reading


To Pre-release or Not … That is the Question

My apologies for the length of this post, but this topic is too complex to lend itself to a “short” entry.

Insurance company managements regularly face the decision of whether or not to comment ahead of a regular release date on some item that will cause results for a particular quarter to fall below those previously anticipated (there is an occasional need for an upward adjustment).

The most common topic is catastrophe losses that have risen above a stated expectation, historic average or other measure (this quarter looks like it’s going to be another tough one for weather). These are often released early because one quarter’s catastrophe losses generally give little insight into a company’s long-term outlook (unless that single quarter turns into a quarter-after-quarter stream of higher-than-anticipated losses that indicate poor risk selection, geographic concentrations or other business concerns).

For insurers, another common pre-release subject is externally driven changes in portfolio values, particularly when they may lead to other-than-temporary impairment charges, Regardless of topic, the estimate generally is given as a range to acknowledge the uncertainty of early data.

The format normally is a news release that gives investors the background of the situation and the range of estimates for the measure under discussion. Even companies that do not give formal earnings guidance work within some framework of expectations and can benefit from a pre-release.

After conversations with a few investors who believe that companies benefit when they issue pre-releases, here are some thoughts for consideration (I would be pleased to discuss the topic with you directly in more depth): Continue reading

Why IR?

Why — Because it matters to investors.

I had breakfast this morning with a sell-side analyst who covers the property casualty insurance industry and a portfolio manager who focuses on the broader financial services arena.

They could not have been more clear about their perspective on investor relations — They know the quality of a company’s communications with Wall Street has a significant impact on valuation.

From my perspective — It was a great way to start the day.


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Can We Talk … About Reserves

This time of year, sell-side analysts issue a stream of reports reviewing year-end Schedule Ps. While each company’s situation is unique, the reports hint at the types of information investors will be seeking on the upcoming quarterly conference calls. Further, there is growing consensus that 2010 will be the year in which many companies tap out reserve redundancies that have helped to offset weakening current accident year results.

After speaking with a number of analysts, I believe companies shy about addressing reserve activity in the interim quarters of 2010 may face negative consequences. Investors may misinterpret a lack of detail as masking worse-than-anticipated deterioration of current accident year loss ratios.

Managements have their best opportunity to shape the interpretation of key points when the reserve information is provided in conjunction with the quarterly release and call. Quarterly snapshots can be volatile, particularly for smaller lines and more recent accident years. But this year, in particular, there is the potential for greater benefit from enhanced transparency than risk from inadequate disclosures.

The simplest way to bolster investor understanding of your company’s reserve activity is to disclose quarterly paid losses (cash out the door on claims), possibly even for each line of business.  Investors can use the ratio of paid losses to incurred losses to approximate reserve trends.

But investors really want loss data by current and prior accident years, preferably for each line of business.  While you can provide this information verbally during the conference call, investors would most appreciate a written disclosure (ideally as an Excel file available on line). Further, investors want management to be prepared to discuss and quantify which accident years are driving reserve changes.

Companies that give these details, but wait until a 10-Q filing that occurs days after the conference call, should consider providing the information in the quarterly news release so that management can help investors interpret the data.

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AIFA and the Economy

It should come as no surprise that the outlook for the economy was top of mind at the AIFA conference.

I heard a number of investors ask open-ended questions aimed at assessing management’s overall level of optimism about 2010 and beyond, which I view as a good sign. Those questions were looking for insight into both insurance operations and the investment portfolio.

On the insurance front, questions about the economy’s effect on pricing and exposures are sure to continue. Here are a few other topic areas that may generate questions in the coming months:

  • Inflation trends, specifically related to setting and evaluating reserves.
  • Relationship of the “side effects” of economic weakness to potential loss trends. For example:

Effect on frequency of deferred maintenance by policyholders or

Effect on severity as the “less experienced” return to the workforce.

  • Underwriter compensation, which leads to two very different follow-up questions:

How underwriting discipline is monitored or

How a company retains underwriters when their compensation drops because of the formula used.

Beyond the economy, discussions at AIFA confirmed that investors are looking at the potential risks of the changing judicial and tort environment. I looked at the communication implications of tort (un)reform after the NYSSA Insurance Conference in February.

I hope these ideas are helpful. I will be adding detailed posts on a few other topics in the next several days.