• 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

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!

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

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.

Effectively Using a “Timeline” Slide

Over the next week or two, I plan to post ideas on ways insurance companies could strengthen their investor presentations.

To start, here’s an idea on making best use of timeline slides. A significant number of AIFA and NYSSA presenters included a timeline in their deck to illustrate the major events that built their company.

As this mock-up shows, companies can make their story more compelling by linking the events to a measure of the value created.

In addition, the headline could capture the strategic theme of the growth, e.g., diversification.

More from NYSSA

More than half of the NYSSA presenters talked about a return on equity target.  But several presenters faced follow-up questions about the effect of lower investment yields on their ability to achieve their ROE target.

Under normal circumstances, I would applaud companies who choose to talk about an ROE target. Generally, I view providing management’s long-term performance targets as key to the strategic message a company shares with its investors. (Please don’t confuse long-term targets with short-term earnings guidance. Guidance is a different topic altogether.)

But I think the follow-up questions at NYSSA showed that investors have identified a “weak link” in the current messaging for insurance companies. Companies should be aware of this concern because of the potential for it to hamper management credibility.

At this point in the insurance and financial market cycles, I would counsel companies to proactively comment on:

  • Current and historic contributions to ROE of insurance and investment operations.
  • Distribution of the long-term target between insurance and investment contributions.
  • Potential effect of a lower investment yield for the short to midterm.
  • Near-term portfolio and capital management plans (investment allocation, duration, repurchase, etc.) with some discussion of the potential effect on yield or investment leverage.

In a future post, I may talk about how companies can use communications to address investor concerns about their ability to achieve the operating side of their target. But that’s for another day (maybe after AIFA).

Back from the NYSSA Insurance Conference

InsuranceIR LLC offers my expertise to property casualty insurance companies looking to enhance their investor communications. This blog is a way to occasionally share ideas on broad topics as a complement to situation-specific advice for clients. (As a bonus, I may meet some new prospects through the blog.)

Earlier this week, I attended the two-day NYSSA Insurance Conference in New York. In total, 16 insurance companies presented to the investor audience. I was able to listen to all but three of the presentations and supplemented my research by reading transcripts of some of the earliest year-end calls.

If you are one of the companies still working on year-end reporting, or if you’re looking ahead to communications for the next quarter, you might want to think about:

  • Geographic Growth Potential – If entering new states is part of your growth strategy, distinguish your plans by giving economic or other data on the opportunity. After listening to two days of presentations, I can confirm that just naming new states or showing a map doesn’t make much of an impression. One option for data would be the U.S. Bureau of Economic Analysis statistics on real GDP by state. The president of the Insurance Information Institute included that information in his NYSSA presentation (available at http://www2.iii.org/presentations).
  • Tort Reform (or “Un-reform”) – At the conference, the medical malpractice carriers were asked what they are seeing in terms of “slippage” of tort reform in various states. The questions focused on what they are seeing for awards and settlements (longer term) and defense costs (shorter term). Looking at this more broadly, if you have a liability book, you should be prepared for questions about the possible effect on your business.
  • Investment Portfolios — The questions at the NYSSA made it clear that investment portfolios aren’t the major concern they were even six months ago (although investors still need all the details, preferably online, in Excel files). Unless there is something unusual in your situation, you should be able to shorten your introductory remarks on this topic. In the comments, key observations would be on interest rate sensitivity and duration, and on the outlook for investment income.

I hope these initial ideas are helpful. Watch for more tips in the coming days.  Insurance companies have unique challenges when communicating with investors and I would love to work with you on your outreach. Feel free to get in touch.