Investor Relations for Insurance Companies – Managing the Message Panelists: Jean Peters, Managing Director, Golden Seeds LLC ; Former Senior Vice President – Investor Relations, Corporate Communications and Strategic Planning, Genworth Financial Heather J. Wietzel, Principal, InsuranceIR LLC ; Former Vice President – Investor Relations, Cincinnati Financial Corporation Mike O’Connell (moderator), Director of Investor Relations Solutions, SNL Financial 1
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Insurance Sector IR - Managing the Message - 01-19-11
Presentation used by panel to discuss the challenges faced by insurance-sector IR teams and how to overcome those challenges through a program to attract and retain the right investors, with the ultimate goal of increasing company valuation.
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Investor Relations for Insurance Companies – Managing the Message
Panelists:Jean Peters, Managing Director, Golden Seeds LLC; Former Senior Vice President – Investor Relations, Corporate Communications and Strategic Planning, Genworth FinancialHeather J. Wietzel, Principal, InsuranceIR LLC; Former Vice President – Investor Relations, Cincinnati Financial CorporationMike O’Connell (moderator), Director of Investor Relations Solutions, SNL Financial
This presentation is intended to be general in nature We are not attorneys, If you need specific advice, please consult your legal counsel
or accounting firm
Every company and every investor relations program is different The regulations allow significant flexibility, leading to wide
variations
Examples used today are from materials available on company websites No relationship with selected companies No “inside” insight into their objectives, etc.
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Key principles Program components Insurance-sector best practices
Snapshot of Investor Relations Practices
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Key Investor Relations Principles
Provide tools investors need to appropriately value your company Company strategy for value creation, must be forward-looking Industry sector and peer issues Market and economic influences
Share quantitative and qualitative information Financial disclosures – GAAP, non-GAAP, statutory Management access / presentations Deep dives into key issues
Make full and fair disclosures, using best tools available Credibility, transparency, timeliness, frequency, consistency
Keep management strategically informed on how investors value the company
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Investor Relations Program Components
Develop the Investment Thesis The message The communications vehicles and tools
Market the Investment Thesis Investor targeting Outreach
o Every disclosure event is an IR marketing event
Live with the Investment Thesis Share investor perceptions with management
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Insurance-Sector IR Best Practices
Develop strategic message, aligned with financial results Consistent story, consistently told Cognizant of rating agency and regulatory views
Manage expectations Certainty drives valuation Insurance is an uncertainty business – delineate boundaries of
risk
Build “investor” mindset within company Engage all areas: c-suite, finance, strategy, communications,
lines of business, legal Become a strategic resource to these areas Integrate message to all audiences
Position IR as first responder to market concerns
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The uncertainty factor Insurance financial statements are an estimate Accounting is convoluted and external databases often do not adjust
for non-GAAP measures important to insurers
The audience Deep insurance expertise among investors is limited Insurance investors are increasingly “event driven”
Unfriendly macro environment Financial services viewed unfavorably Economic concerns weigh on fundamentals Insurance is viewed as complicated and boring
Significant regulatory and accounting changes on the horizon (IR perspective)
Challenges of Insurance-Sector IR
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The Uncertainty Factor
Insurance financial statements are an estimate Cost of goods sold depends on assumptions for reserves,
amortization, persistency, growth, etc. Expenses amortized against uncertain revenue stream and
timing Reserves are management’s best judgment of future
External databases don’t adjust for non-GAAP measures Operating versus net income Book value excluding OCI Statutory vs. GAAP vs. key non-GAAP measures
Companies use varied accounting methodologies
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The Audience
Deep insurance expertise among investors is limited Professional investors are increasingly “event driven”
Intrinsic or “priced” events:o Catastrophes o Mortality o Morbidity
Exogenous events: o Reserve inadequacieso Changes in state insurance regulationso DAC and other “unlocking” o Unforeseen ratings changeso Exposure to investment risk
Many insurance companies have significant retail ownership with ties to company
Investor communications seen by all other constituencies
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Unfriendly Macro Environment
Financial services viewed unfavorably Outgrowth of the financial crisis
Economic concerns weigh on fundamentals Balance sheet strength driven by investment markets
Insurance is viewed as complicated and boring Does not resonate with “consumers” Does offer important investment fundamentals
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Regulatory Environment (IR perspective)
Dodd-Frank Act “Say on Pay” on 2011 proxies (requires preliminary proxy) Institutional reporting of “say on pay” votes a reputation risk for
Rule 452 – obtaining a quorum and majority for key votes
Reg SHO – short-sale trigger implementation delayed until February 2011
Looking ahead: Proxy plumbing issue remains under consideration by SEC Will we see “expert network” regulations? Proposed international accounting standards a potential disaster
for insurance companies (and insurance investors)
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Insurance-sector IR “strategy” Providing the RIGHT information In the RIGHT places
So What Can An Insurance Company Do?
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Insurance-Sector IR “Strategy”
Message needs to be focused, consistent and forward-looking “Strategy du jour” won’t work Strategic message must align with financial reporting
Communicate intra-quarter; Provide regular, detailed updates on strategic progress
Be prepared to educate new or interested investors on valuation metrics Augment disclosures with tutorials, glossaries, field trips, etc.
Insurance boutiques and large firms with specialized analyst coverage can be an important resource Identify targeted investors that you can impact Generalists will have limited expertise and may not put in time
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Providing the RIGHT Information
Many specific metrics – relate them to strategy Revenues Expenses Operating metrics Financial strength Investment portfolio
Examples
XL Group plc (NYSE: XL)A Look At the Change in Book Value
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Selective Insurance (NASDAQ:SIGI) Measurement of Pricing
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Renaissance RE (NYSE:RNR)Analyzing Pricing Discipline
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Influences the Audience Analyst reports (sell- and buy-
side) Rating agency reports Rankings (media, industry) Competitors communications Media (old-style and new) Governance ratings and proxy
advisory commentary Data aggregators Special interest surveys and
rankings (e.g., socially responsible investors)
In the RIGHT Places
Managed Directly 10-K and “annual report” 10-Qs, earnings releases and