• 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

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.

Can We Talk … About Reserves

This time of year, sell-side analysts issue a stream of reports reviewing year-end Schedule Ps. While each company’s situation is unique, the reports hint at the types of information investors will be seeking on the upcoming quarterly conference calls. Further, there is growing consensus that 2010 will be the year in which many companies tap out reserve redundancies that have helped to offset weakening current accident year results.

After speaking with a number of analysts, I believe companies shy about addressing reserve activity in the interim quarters of 2010 may face negative consequences. Investors may misinterpret a lack of detail as masking worse-than-anticipated deterioration of current accident year loss ratios.

Managements have their best opportunity to shape the interpretation of key points when the reserve information is provided in conjunction with the quarterly release and call. Quarterly snapshots can be volatile, particularly for smaller lines and more recent accident years. But this year, in particular, there is the potential for greater benefit from enhanced transparency than risk from inadequate disclosures.

The simplest way to bolster investor understanding of your company’s reserve activity is to disclose quarterly paid losses (cash out the door on claims), possibly even for each line of business.  Investors can use the ratio of paid losses to incurred losses to approximate reserve trends.

But investors really want loss data by current and prior accident years, preferably for each line of business.  While you can provide this information verbally during the conference call, investors would most appreciate a written disclosure (ideally as an Excel file available on line). Further, investors want management to be prepared to discuss and quantify which accident years are driving reserve changes.

Companies that give these details, but wait until a 10-Q filing that occurs days after the conference call, should consider providing the information in the quarterly news release so that management can help investors interpret the data.

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