• 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

Stand Out by Looking Ahead

I kicked off September with a trip to New York to attend an investor conference, where I had the opportunity to listen to a number of insurance company presentations. I also visited with several other analysts. (It’s always good to see industry and investor friends, thanks to all!)

Attendance at the conference was excellent, despite the holiday week timing, which is good news for the industry. But I saw continued uncertainty, with investors appearing even more pessimistic than two months ago about the near-term outlook for the industry as a whole. For example, surprisingly few managements were asked about the pricing environment. And when asked, the questions seemed pro forma, as if investors didn’t really expect to hear anything new or upbeat about commercial or E&S pricing trends (the overall view of personal lines remains a bit more favorable).

That said, the continued interest in insurance stocks argues that all is not lost and that this is the time to step up outreach to investors, not cut back.  (Three out of four U.S. property casualty insurance companies are trading at a discount to book value, one can argue that some must have favorable prospects.)

There is no one-size-fits-all solution to translate investor attention to action in this market (making it difficult to make recommendations here that are appropriate to all situations). But investor needs generally are best met by clearly and credibly articulating the business strategies that will differentiate a company’s business in years to come. To meet that need, I recommend shaping communications around the strategic plan (appropriately modified for competitively sensitive information), supported by the metrics used to measure the success of the initiatives.

The need for this type of forward-looking communications exposes a message weakness for many insurance companies. Managements often seem most comfortable explaining how they have gotten the company to where it is today, describing successes in very different insurance and investment environments. Investors may listen politely, but that focus is not the best use of their time, or management’s.

Be Forthright to Counter Prevailing Mood

My trips to New York and Chicago over the past two weeks included visits with four industry sell-side analysts (thanks to each for their time).

I also attended Cagney Network’s 2010 Insurance Round Table along with buy-side investors and others with industry or consulting roles.

As I look through my notes, I see only one common theme — uncertainty.

Regardless of background, no one seems to have confidence in the economic outlook.  Those in the financial markets seem the least optimistic.  For the property casualty insurance industry, most see intermittent positives in some business lines. With a few interesting exceptions, most also see some event that dramatically reduces capital as the only way to end the current soft market.  (And no one seriously wants an event of that magnitude because of the human cost!)

Realistically, there are only a handful of companies that might be able to individually reverse the current mood.  I see many of the remainder very tempted to “fly below the radar” until the mood changes.

My advice — don’t.  There is no advantage in letting your company become one more source of uncertainty, even if the going is tough.   Better communications isn’t a way to mask weak performance. But better communications can be used strategically to reduce uncertainty and to bolster management credibility, arguably a company’s most important intangible asset. For those reasons, I recommend that companies:

  • Become more transparent – Give new insights into your long-term business strategies and decision-making
  • Add to your disclosures – Provide more detail (and data) on the drivers of your current results and sources of future opportunity
  • Make management more available – Let more investors hear directly from your leaders
  • Share your vision – Help investors see how the company might perform under best-case and worst-case scenarios and how it is differentiated in the market

Market Demographics May Support Your Case

So far, first-quarter releases and calls are rolling out in fairly orderly fashion with the biggest question being whether reserve releases are realistic and the biggest debate being whether some companies should have pre-released their catastrophe losses (and not “missed” consensus). Reflecting conversations with a few analysts over the past several weeks, I’m planning to look at the “to pre-release or not” topic for insurance companies in time for consideration for the second quarter.

In the meantime, I was reminded by an SNL marketing email of one valuable way insurance companies can address another topic — helping investors see their potential as the market hardens. SNL is promoting their “Market Demographics” template. According to their email, it’s a “pre-built model” that let’s you “view comprehensive data on key demographic indicators, including population, median income, home value and unemployment” by state, county or MSA. In other words, they are making it easy to do useful research.

The economic recovery is expected to be a major factor in the return to premium growth. But not all markets are equal and supporting your company’s specific plans with market data can help make your case.

For example, when talking about geographic expansion, population growth is expected be above 7% over the next five years in Arizona, Georgia, Idaho, Nevada, North Carolina, Texas and Utah (compared with a 4.6% average for the U.S.). If these are your target states for expansion, you may be able to bolster your case for your outlook.

Or you may already be seeing growth in some states (supporting lagging results in others). You could make a case that you are seeing quality business opportunities if the growth was in Hawaii, Iowa, Kansas, Louisiana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Utah and Vermont. In those states, March unemployment was below 7.5% compared with a 9.7% average for the U.S. This type of data also may add color to discussions of audit premium trends.

* InsuranceIR LLC purchases SNL data services 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 $500 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.