Posted on February 15, 2010 by Heather J. Wietzel
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).
Filed under: NYSSA | Tagged: NYSSA, ROE, targets | Leave a comment »
Posted on February 11, 2010 by Heather J. Wietzel
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.
Filed under: NYSSA | Tagged: Conference Calls, NYSSA | 2 Comments »