• 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.

  • Pages

  • Copyright 2012

Good News — FASB/IASB Insurance Contracts Convergence “Not Likely”

Last week, it was reported by PWC and other sources that FASB Chairman Leslie Seidman had “indicated that based on the nature and totality of differences between the FASB’s and IASB’s (the boards’) views, it is not likely that the two boards will achieve convergence on this [insurance contracts] project.”  The full text of the PWC item is available here.

As envisioned as recently as two weeks ago, the FASB and IASB plan to converge the two standards’ insurance contract accounting was expected to radically change the way insurance companies presented their financial results. In a blog post last year, I noted that “investors with whom I have spoken believe the proposed changes would result in lower book values and more volatility in earnings and book values for insurance companies.

Keeping in mind that the presentation of financial data is intended to help the users of the information (investors) better understand a company and its future prospects, I believe we all should applaud FASB’s decision to step back from the potentially problematic changes that were being considered.  I believe we also should express appreciation for the input provided to FASB and IASB on the proposals over the past several years by representatives of the insurance-sector investment community, individual insurance companies and industry groups.

Last week’s reports also indicated that FASB now expects to begin exploring potential refinements to U.S. GAAP accounting for insurance contracts. We can all look forward to opportunities to support FASB in those efforts.

Philosophy vs. Data (times three)

In my view, one of the most intriguing aspects of last week’s NYSSA Insurance Conference was hearing the managements of three different companies (out of 16) give largely “philosophical” rather than “data-driven” presentations. I believe insurance-sector investor communications teams should evaluate whether this approach could be appropriate for their situation.

Alphabetically, with links to the webcasts of each company’s NYSSA presentation, I am referring to:

(Note: InsuranceIR does not have a business relationship with any of these companies.)

While there were distinct differences between the three presentations, they shared a number of common attributes:

  • Speaking style was conversational. As a listener, I felt that narratives were being shared about how these managements view their business and what they deem to be integral to the success of those businesses.
  • Very little of the time was spent on a detailed review of historic performance or “to-the-decimal” business metrics. As a listener, I appreciated that the speakers were not reciting information readily available in print or electronic materials (although data was used appropriately to support key contentions).
  • Projected slides were heavy on concept and light on “detail.” As a viewer, I was not distracted by cluttered slides projecting complex data in type too small to be read.
  • The audience was paying attention. During these presentations, the iPhones, iPads and Blackberries had not disappeared, but I felt that a higher-than-normal portion of the audience kept their eyes on the speakers and off their “devices.”

Full Disclosure Not Misdirection

I believe investors would agree that the success of this presentation style is largely predicated on another important attribute – consistent availability of complete, transparent disclosures of the details otherwise un-discussed in a “philosophical” presentation.

Based on a brief review of the companies’ respective websites, IPCC, PRA and RLI all appear to provide financial supplements and/or supporting presentation handouts that offer operating metrics and other financial details in sufficient depth to meet investor needs, and they appear to provide that data routinely.

Considering the Opportunity to Adapt the Investor Presentation

Investors across all sectors appreciate managements that are willing to devote time to outreach. But accessibility alone only goes so far. In my experience, investors vastly prefer conference presentations that go beyond “reviewing the business,” and instead help them assess a company’s management team and give them insight into:

  • What sets a company apart
  • Its competitive advantages
  • Its operating strategies
  • Management’s view of the company’s potential

To accomplish these objectives, companies may need to rethink the approach used for their presentations. I believe the philosophy-based presentations given by IPCC, PRA and RLI at the NYSSA Insurance Conference were compelling examples of one viable alternative style.

The Timeline Slide … in action

I’m now back from the NYSSA Insurance Conference. It was another great opportunity to see friends. It also proved to be a very interesting conference from an investor relations perspective, for a number of different reasons.

I expect to do a couple of posts on those topics, and I wanted to start by highlighting an effective (although complex) slide used by Argo Group (NASDAQ:AGII) in their presentation.

As background, generally the various permutations of “timeline” slides provide only a look at events in a company’s history, giving little insight into the benefits or implications of those events. After the NYSSA Conference two years ago, I did a post looking at how an insurance company might present a timeline that explained their history in a way that offered greater value to investors.

At this year’s conference, in real time, Argo used a slide very similar to the suggestion made in that post. (Note that InsuranceIR does not have a business relationship with Argo Group. I also do not know if they were aware of the earlier post.)  In any case, below is a copy of the slide used (click on the slide to link to the full presentation from the company’s website).

The graph and accompanying details provided by Argo gives investors useful information on the changes that have occurred in their business as they have made strategic decisions.  Kudos!

Mulling AIFA – It Really Is Time to Differentiate!

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.

“Year-end” is Winding Down … Now for AIFA

I am finding it almost impossible to believe that a year has gone by and that AIFA’s (Association of Insurance Financial Analysts) 2012 annual conference is just a week away.

This conference is one of my favorite “working” events.  So many of my investor and corporate friends attend and we can catch up in a less formal setting (hopefully enjoying a bit of Florida warmth).

In addition to the social aspects, the formal portions of the conference include panel discussions on the variety of topics that insurance-sector investors find important — investments, accounting changes, M&A, rating agency views and business strategies for different property casualty and life insurance business areas.

My experience has been that panel member commentary and investor questions at the AIFA conference often give new insights that can help shape the direction of a quality investor communications effort over the coming months.

I hope to see you there!

Before I close, I also want to draw your attention to two new pages:

These provide details on two areas where InsuranceIR can help insurance companies enhance their investor communications efforts.  I would welcome the opportunity to talk with you about how these (or InsuranceIR’s other services) might be appropriate for your company’s situation.

USA hit by 12 disasters that cost at least $1B – USATODAY.com

2011’s weather as a consumer-press headline … interesting!

USA hit by 12 disasters that cost at least $1B – USATODAY.com.

FYI — NYTimes — Irene Adds to a Bad Year for Insurance Industry

Irene Damage May Hit $7 Billion, Adding to Insurer Woes – NYTimes.com — This New York Times story provides an interesting recap of the disaster-related losses the insurance industry has faced in 2011, and how 2011 compares with earlier years.

I also think it serves as a useful reminder that a common investor view of catastrophe events — as a potential catalyst for price firming — isn’t necessarily the view taken by the property casualty industry’s other constituencies (policyholders, regulators, communities, employees, etc.).

Insurance-sector investor relations teams are well served by keeping the reality of integrated communications in mind when preparing materials for investor audiences.

(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

Elegant Solution

Yes, I’m back. More on that in a moment.

But first I wanted to observe that last week, Allstate Insurance* (NYSE:ALL) pre-announced catastrophe losses for April storms. In that release, the company also noted:

“In the future, Allstate plans to announce monthly and quarter-to-date estimates for catastrophe losses when monthly catastrophe losses are estimated to exceed $150 million. These announcements will inform investors who have a strong interest in the company’s catastrophe loss estimates when there is significant severity or frequency of catastrophe events. Over the past 10 years, Allstate had catastrophe losses exceeding $150 million in about 30 percent of months.”

I’ve talked about pre-releases in the past, for example in “To Pre-release or Not … That is the Question.

Pre-releases serve several very important roles, not the least of which is helping companies focus their communications on business strategy by reducing investor uncertainty and minimizing distractions. Allstate’s “line in the sand” solution to the question of “when” a pre-release is appropriate is elegant in its simplicity. In my view it stands as a useful example of how a company might address this disclosure conundrum.

InsuranceIR Update

Without boring you with the details, the past few months have been complicated and busy! While nothing earth shattering, dangerous or untoward occurred, life challenges kept me very distracted — and then we moved into first quarter earnings season with lots of client work. The blog simply fell to the bottom of the list. (A sample “life challenge” was having the car hit in the rear by another car, deemed to be “totaled” and, therefore, needing replacement … but no one was hurt and the insurance claim was handled by Cincinnati Insurance** in its typically highly efficient and fair fashion … thanks folks! … so it was just time consuming.)

Expect a return to more regular posts.

Note: InsuranceIR does not have a business relationship with Allstate. 

** Full disclosure: Cincinnati Financial is not a client of InsuranceIR, but I served as the company’s investor relations officer from 2003-2009 and remain a Cincinnati Insurance policyholder (for good reason!).

And Now For AIFA

After almost six weeks of earnings reports and conference calls, I suspect insurance investors are looking forward to AIFA’s (Association of Insurance Financial Analysts) upcoming Annual Conference as much as I am.  The conference begins Sunday night and runs through Wednesday morning.

I’m looking forward to attending — partly because it should be warmer in Florida but more important — because it will be a great opportunity to catch up with investor and corporate friends in a less formal setting.

I’m also looking forward to listening to the panel discussions (a new format this year) that will focus on different facets of the insurance industry.  Presenter commentary and investor questions may give new insights that can help shape the direction of investor communications over the coming months.

I hope to see you there!