• 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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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!).

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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!

To Pre-release or Not … That is the Question

My apologies for the length of this post, but this topic is too complex to lend itself to a “short” entry.

Insurance company managements regularly face the decision of whether or not to comment ahead of a regular release date on some item that will cause results for a particular quarter to fall below those previously anticipated (there is an occasional need for an upward adjustment).

The most common topic is catastrophe losses that have risen above a stated expectation, historic average or other measure (this quarter looks like it’s going to be another tough one for weather). These are often released early because one quarter’s catastrophe losses generally give little insight into a company’s long-term outlook (unless that single quarter turns into a quarter-after-quarter stream of higher-than-anticipated losses that indicate poor risk selection, geographic concentrations or other business concerns).

For insurers, another common pre-release subject is externally driven changes in portfolio values, particularly when they may lead to other-than-temporary impairment charges, Regardless of topic, the estimate generally is given as a range to acknowledge the uncertainty of early data.

The format normally is a news release that gives investors the background of the situation and the range of estimates for the measure under discussion. Even companies that do not give formal earnings guidance work within some framework of expectations and can benefit from a pre-release.

After conversations with a few investors who believe that companies benefit when they issue pre-releases, here are some thoughts for consideration (I would be pleased to discuss the topic with you directly in more depth): Continue reading