InsuranceIR's Blog

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.

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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

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