• 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

Transparency that Insurance Investors WANT

With my passion for best practices in insurance-sector investor relations, I am always thrilled when I run across examples of companies doing things really well.

As an example of “providing investors with the transparency they want,” I’m highlighting the comprehensive and timely (timely = early enough to be useful) reserve-related disclosures of Endurance Specialty Holdings* (NYSE: ENH).

I recommend taking a look at Endurance’s “global loss triangles” and the various materials available on the “Quarterly Results” page of their IR site.  A number of the Bermuda carriers, including Endurance, provide global loss triangles to show their business consolidated across various jurisdictions to supplement any U.S.-only Schedule Ps. (While U.S. carriers could view their Schedule Ps as sufficient, I believe Endurance’s materials offer useful ideas that could be help enhance the 10-K or other disclosures.)

Of course, the material offers good data.  But I consider the probable “philosophy” behind the information as important as the data itself. As I have said in the past, better and more transparent communications can be used strategically to reduce uncertainty and to bolster management credibility, arguably a company’s most important intangible asset. Companies and investors win when companies give investors the detail (and data) on the drivers of current results and sources of future opportunities that investors WANT.

* Note: InsuranceIR does not have a business relationship with Endurance.

An Update On Municipal Bond Disclosures

As we move through year-end reporting, municipal bond portfolios generally seem to be holding up better than expected. But insurance companies still may want to consider ways to help investors understand the exposure their portfolio has to this sector and the risk associated with the holdings.

Comments made on this topic during Traveler’s (NYSE:TRV*) fourth-quarter call by Jay Fishman, Chairman and CEO, put the challenge in context.  As taken from the SNL transcript of the call, he noted:

“…  there seems to be this bias amongst even sophisticated people to view municipal securities are all the same, as if somehow we own some prorated share of an aggregate monolith marketplace and that’s just not the case. Everyone understands that in the taxable fixed income world, the issuer and the specific terms and conditions of the instrument matter, and that’s equally as true in the municipal arena. …”

Travelers went on to discuss how they build their muni bond portfolio and how they view it, offering a model other insurance companies might consider adopting. They provide useful metrics in a supplemental presentation (see pages 22 and 23).

Even companies that already have released earnings might benefit by adding color to the discussion of their municipal bond portfolio in their 10-K.

* Note: InsuranceIR does not have a business relationship with Travelers

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

From D&E: Preparing for Proxy Season

I encourage insurance companies to take a look at “Be Ready, Be Smart: 7 No-Nonsense Ways to Prepare for Proxy Season.”

The article is a great overview of the current proxy environment and offers very useful advice for companies in any industry.

One of the two authors is Rob Berick, senior managing director of Dix & Eaton. The depth of expertise that the Dix & Eaton team brings to governance and related topics is one of the reasons I am so pleased to have a strategic alliance with the firm.

NYSSA Insurance Conference Up Next

The first full week of insurance earnings is winding down with lots of interesting news, leaving us all impatient to see what the next set of reports might bring and how the market might react.

Next week, I will be attending the NYSSA Insurance Conference on Monday and Tuesday. I’m looking forward to hearing the various company commentaries. Even better, I will have the chance for some face-to-face conversations with investors on their thinking.  I will follow-up with a summary.

Also, I’ll be attending AIFA in early March. At that point, most of the year-end numbers are out, which makes it a great opportunity to hear how the investors are looking at the next year.  (If you are planning to be there, send me a note, I would love to talk in person.)

Finally, I’m planning to spend some time at NASDAQ while in New York.  I’m looking forward to learning more about their DIY release tool/capability.  I’ll report on that as well.

Say-On-Pay Reputation Risk for Insurers

(Actually, the potential for reputation risk may exist for all publicly traded companies with investment operations, but there may be different aspects to take into consideration for different industries.)

As has been widely reported, the SEC yesterday finalized its rule titled “Shareholder Approval of Executive Compensation and Golden Parachute Compensation,” better known as Say On Pay. The entire 152-page rule is available here, and the SEC’s summary and fact sheet here. Law firm WilmerHale has posted one of many available summaries here.

The rule affects companies in every industry; insurance companies aren’t treated any better, or any worse, although smaller reporting companies are exempt until 2013.

But there’s one interesting twist for companies that file 13-F reports with the SEC regarding the holdings in their investment portfolio.  The Dodd-Frank Act required those 13-F filers — a classification that includes most insurance companies — to annually disclose how they voted on say-on-pay and golden parachute matters for holdings in the portfolio.

Although the final rule issued yesterday does not yet address this requirement, I encourage insurance companies to keep this in mind as proxies are voted by their investment operation. I have seen one report that the SEC indicated in their open meeting yesterday that they would address this topic in the coming month.

This rule could expose insurance companies to “reputation risk” if their investment team votes proxies for say on pay in a fashion out of line with the board and management’s stance on the company’s own corporate governance.  I suspect the most likely disconnect would reflect a company:

  1. Recommending to its shareholders that say-on-pay voting occur every three years while
  2. Voting proxies for holdings in its portfolio for say-on-pay voting to occur every year, regardless of the recommendations made by the respective companies’ boards.

It’s akin to “do as I say, not as I do.”  It will be interesting to see how the SEC shapes these reporting rules.

Managing the Message — Insurance-Sector IR

Yesterday SNL Financial* hosted a webinar titled “Investor Relations for Insurance Companies – Managing the Message.” For the discussion, Jean Peters and I shared our perspectives on the challenges faced by insurance-sector IR teams and how to overcome those challenges. We talked about shaping the company’s message to meet investor needs  and about attracting and retaining the right investors, with the ultimate goal of increasing company valuation.

Jean is Managing Director for Golden Seeds LLC and formerly Senior Vice President – Investor Relations, Corporate Communications and Strategic Planning for Genworth Financial.

The slides are below. A replay of the webinar will be available on6 the SNL website.

* Full Disclosure:  InsuranceIR LLC purchases data services from SNL Financial and participates in their “IR Partner Program.” Under the terms of that program, any company that contracts for services from SNL based on my recommendation receives a credit on their initial bill. InsuranceIR does not receive any cash compensation for referrals. By participating in various marketing activities with SNL, I may receive non-cash benefits, such as higher visibility.

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!

For Insurance Companies: Managing the Message Webinar

Please join me on Thursday, January 20, from 1:30-3:00 p.m. ET for a (free) SNL Financial* webinar titled “Investor Relations for Insurance Companies – Managing the Message.”

For this webinar, I’ll be part of a panel discussing the challenges faced by insurance-sector IR teams and how to overcome those challenges through a program to attract and retain the right investors, with the ultimate goal of increasing company valuation.

(Also, the webinar will provide CE credits for the CFA Institute and National Association of State Boards of Accountancy.)

* Full Disclosure:  InsuranceIR LLC purchases data services from SNL Financial and participates in their “IR Partner Program.” Under the terms of that program, any company that contracts for services from SNL based on my recommendation receives a credit on their initial bill. InsuranceIR does not receive any cash compensation for referrals. By participating in various marketing activities with SNL, I may receive non-cash benefits, such as higher visibility.

10-K as a Resource for the IR Team

I’m on record that I believe the filed documents – in particular the 10-Ks and 10-Qs – should be integrated with the investor communications effort.  At many companies, the first step is making them a resource for the investor relations team.

Yesterday, WebFilings hosted a webinar on that topic — “Using the 10-K to Enhance the Investor Relations Effort.”

On the webinar, I made a few related points that I think should be top of mind for all IR teams:

  • Management attention – CEOs and CFOs are engaged in the process. They have “direct and personal accountability” for the 10-K and 10-Q content, which means these documents often offer investors important insight into business strategy and outlook, even if that information is buried is fairly dry prose.
  • SEC focus – The SEC wants consistency in communications, inside and outside the filings. Using the 10-K as a resource for news releases, scripts and other materials helps foster a consistent message.
  • Reg FD compliant – Material in a published 10-K is already full disclosed.  With a few caveats, largely related to “guidance” items, there is little FD risk in using material from the 10-K.
  • (at least some) Investor read the filed documents – The investors who read these materials consider the information to be important.  They trade on it and use it to shape their views. When the IR team uses the 10-K as a resource, it makes sure those strategic messages are shared more broadly.

The presentation is available for download on SlideShare.

An audio replay of the webinar will be available in the archived webinars section of the WebFilings site.

Full Disclosure: In November, I posted an item about WebFilings and the potential value of their tool for investor relations. I have no business relationship with WebFilings, but they have been kind enough to continue to talk with me about ways in which we can share resources to achieve our respective objectives, such as this webinar.

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