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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

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Snapshot of Investor Relations

Practices

Challenges of Insurance-Sector IR

So What Can An Insurance Company

Do?

Key Metrics for Investor Relations

Managing the Message (Today’s Program)

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Safe Harbor

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

insurance companies “Proxy Access” implementation delayed pending lawsuit “CEO Pay Comparisons” delayed

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

financial supplements News releases Conference calls Presentations

One-on-one meetings Conferences “Investor days”

Proxy statement Web site (archive all relevant

data) Statutory filings New tools (social media) Sustainability reports

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Example: Earnings Conference Call

Earnings Call Comprises All Key Strategic IR Issues Earnings release

o Is it time to move to a web advisory?

Financial supplement Conference call scripts and participants SEC filings – 8-K, and 10-Q or 10-K Multi-faceted audience

o Current investors / interested buy-sideo Sell-side analystso Others: Employees, competitors, rating agencies, media

Q&A session -- must be intensively managed Follow-up

o Transcripts, replays, research reports, buy-side questionso Tools for ongoing investor marketing intra-quarter

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Example: Earnings Release Process

Press release prior to call Release should detail segment results and any unusual items IR gathers investor concerns and comments to feed into

scripts IR informs management of likely questions from key analysts,

etc.

During call, project Q&A queue on screen so management knows who will ask next question Have appropriate business leaders on hand to field hot topics

Post presentation materials on website; create ad hoc additional disclosures if necessary (file as 8-K)

File 10-Q as close to simultaneous with release/call as practicable Financial supplement should reflect all key issues for quarter

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Target marketing Reaching the correct investors

Behavior of those investors (ownership metrics)

Relative valuation Peers

Broader market

Trading metrics Volume

Volatility

Other qualitative Perception studies

Tone of research

Key Metrics for Investor Relations

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Investor Relations for Insurance Companies – Managing the Message

Questions