The 2012 AIFA conference last week was great – attendance was up and the mood was positive. I thoroughly enjoyed the chance to see investor and corporate friends. And I always appreciate the opportunity to hear so much industry “talk” in such a short period of time. I also will attend the 2012 NYSSA Insurance Conference next week, which may provide more insight.
But since AIFA, I have been mulling what I heard in the formal sessions and in informal conversations (and reading post-conference research from various analysts).
As always, my objective is to identify timely opportunities for companies to augment their investor communications. By providing information that addresses current concerns, companies are helping to make certain that analysts have the right information to assess the potential for book value growth (and valuation). And by clearly addressing topical concerns, companies raise the likelihood that an analyst will be comfortable recommending the stock to portfolio managers.
Differentiating Insurance Operations
In today’s market, I believe the most significant opportunity for insurance company communications is differentiating the potential of the insurance operations, and doing so in ways that have not been necessary for some time.
At this stage, investors see interest rates remaining low for the foreseeable future. As a result, they see any book value growth largely being driven by a higher ROE from insurance operations (risk- or fee-based). (Note that investors continue to expect lower levels of reserve releases going forward, but seem less worried than in the recent past about the potential for out-sized reserve strengthenings.)
But investors do not believe that the “rising tide” of improving rates will benefit the insurance operations of all companies equally – even within discrete lines of business. Companies that do not clearly differentiate the potential of their business run the risk investors will draw inaccurate conclusions.
Offer Up the Operating Plan
In this context, I recommend insurance companies look at ways to enhance their communications about their operating plan, for example:
- Measurement of the potential of markets served, whether those markets are defined by product type, geography or industry (an example of which was discussed in a recent post)
- Clear illustration (and measurement, when possible) of competitive advantages, such as product features, customer service, etc.
- Quantifiable underwriting analysis to break out pricing advantages
- Operating analysis that shows the potential for economies of scale and other sources of operating leverage
I would add that these ideas are distinct from a retrospective look at lines of business served, when those lines were entered and performance trends of the past five or more years.
Competitive Intelligence?
And no discussion of messaging on business opportunities would be complete without addressing the concern that there may be competitive risks associated with discussing – even in broad terms – what is essentially the business plan. While this is a real concern – and the success of the business is the most important consideration — in my experience, the risk is often overstated.
When faced with concerns about sensitive information, I recommend that companies:
- Ask “do our competitors already know this?” and
- Check with their marketing department for confirmation
I make those suggestions because I have seen first hand how quickly marketing communications and other competitive intelligence moves from one carrier to another via distribution partners. If competitors already know the information, using it in investor communications is a logical next step. And when material is deemed competitively sensitive, I recommend evaluating how “relative” values or “sample” data might be used to help illustrate a particular topic.
Creative Outreach
Finally, with renewed confidence in an “upside” for the insurance sector, I encourage companies to become more creative in their outreach to investors. This may be the time to arrange field trips, to bring distribution partners to selected meetings or to use web-based capabilities, such as online videos, to showcase aspects of the insurance operations.
InsuranceIR offers strategic consulting and messaging support to insurance company clients. I would be pleased to discuss how these ideas could be implemented to meet your company’s needs, at your convenience.
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