For publicly traded reinsurance companies in the US, at least those left, annual reports provide a good opportunity to display strategy, success and corporate personality. Mindy Pollack shows how you can tell a lot about a reinsurer from its annual report without ever reading the financial statements.

It is spring, and that means sunshine, flowers and annual reports arriving in mailboxes for May shareholder meetings. Most reinsurers have completed their reports in March or early April, but the effort expended in designing, drafting and fine-tuning the annual report can start as early as September of the preceding year. As many as six or seven divisions of the company may be involved in gathering information and writing text, with the ceo establishing the overall tone and message. Why does the annual report get so much attention?

Many people think the annual report is purely a creature of US regulatory compliance, thickened by financial statements and disclosures mandated by the Securities and Exchange Commission (SEC). In reality, a good portion of the corporate annual report - including the most highly read section, the Chairman's Letter to Shareholders - is not required by federal regulators. With increasing frequency, companies are separating the financial and disclosure content from these more discretionary editorial features, which now occupy the first 20 or so pages of the report.

The Letter to Shareholders and other editorial features do help put the hard numbers in context, but reinsurers make far greater use of this valuable space. Through executive interviews they frame new leaders and corporate vision. Photographs portraying new and existing product lines sell the reinsurer's capabilities as well as its successes. Dazzling charts highlight areas of growth and improvement. Starting with the cover, the glossy annual report establishes the image and sends out the key messages of the reinsurer, perhaps as much as its ads and other marketing materials.

No wonder the annual report gets so much high-level attention within a company and the industry. In one document it must produce (in part) anyway, the reinsurer can build image, market its people and specialties, and announce future strategy. Before any detailed financial statement appears, even before a page is turned, a reader can start forming a good picture of the reinsurer. As to the image the reinsurer wants to convey, you be the judge! We just give you some visual and verbal clues for your walk through the 1998 crop of reinsurance company annual reports.

Getting the message out

Before the annual report can convey image and message to a large audience, the reinsurer must make two important decisions. First, the company must determine exactly what message or image will further its business goals. Second, the reinsurer will identify which audiences should receive that message. There are inevitably many corporate themes and interested readers, but one or two messages and related audiences will rise to the top for any company.The potential audiences only begin with the investment community. Even investors range from individual shareholders to the largest institutional investors, not to mention analysts and bankers. Second on the readership list might be client insurance companies and reinsurance intermediaries, extending to managing agents and other current or targeted business partners. Often overlooked is a third group - employees. The annual report can clarify corporate objectives for managers and inform employees of progress; it can make new affiliates feel more a part of the organisation and recruitment candidates wish they were a part of it.Before the most valuable readers can be reached, the reinsurer must determine the image or message and the best way to convey it. New products, management changes or internal restructuring may dictate the themes in any one year. A reinsurer keen on international expansion will highlight its global capabilities and joint ventures abroad, while another reinsurer might review recent acquisitions and cross-marketing opportunities. The messages should reflect where the company is and where it wants to go; the annual report cannot provide answers unless management has them first.

Now the reinsurer can match message with audience, and begin shaping the content and distribution plan. If the reinsurer wants to trumpet new lines of business, expect to find photos of staff or risks in that line and a mailing to insurers, brokers and agents. You should be able to pick out several messages with one dominant theme. If you already know a lot about a reinsurer, take a guess about the theme or image first, and then look at the key statements and visual aids in the annual report to confirm your intuition. Conversely, pick up an annual report of a company you do not know so well, look for the same type of clues and make your best guess. You are probably correct.

Clues on cues
There are many ways a reinsurer can portray itself or its messages, in addition to plain text. Starting with the covers featured here, reinsurance annual reports can be single colour without any adornment; others feature artwork or a collage of photographic or other images. What might you surmise about the reinsurer? The simple cover may signify a conservative or economic approach from a company allocating more resources to shareholders than report covers. Unusual, colourful artwork can reflect innovation and get more attention for a start-up or small company with unique products. A photography collage might emphasise the range of risks, locations or activities.

The graphics inside the report can build image and convey message more effectively, if only for the greater flexibility and space inside the cover. We can start with a simple visual cue: a globe. If a reinsurer's annual report features a globe, map or parts thereof on the cover or as a backdrop to management photos or operational updates, chances are the company has major international expansion on its mind. A corporate organisational chart is a useful tool for putting numerous subsidiaries and profit sources into their proper places; the company can highlight organisational controls while showing synergies among the groups for growing new business. A timeline displaying many achievements in a short period of time can signify energy and progress of a new company. Check the Transatlantic, Chartwell and Risk Capital Re reports for how they make use of these visual aids.

Even comparing one feature - charts - across annual reports can be illuminating. Some reports do not contain any charts, reinforcing the conservative image and maintaining focus on the numbers themselves. When charts are used, they can be low-key and secondary to other graphics, or colourful and dominating. Use of more traditional pie and bar charts in corporate colours is consistent with a conservative image. When the charts vary in form or the colours are vivid, you infer a rather aggressive company. Compare the low-key Trenwick charts to the eye-catching Chartwell graphs for a contrast; the general way to provide information is the same, but the details may reflect distinctly different corporate personalities.

Many annual report readers, including many of you, head straight for the photographs to find their friends and professional acquaintances without even slowing for any text. Admit it! Some reports are devoid of photographs for that very reason. Other reports feature only top management; a photograph with several senior executives sitting together suggests a corporate unity theme. Companies showing all profit centre staff may have a marketing motive combined with cross-departmental teamwork. If the reinsurance company CEO is alongside the parent CEO, the message is confidence in the reinsurance executive, which you might find after corporate or industry instability.

Now, consider a photograph of executives around the table with a map or images of catastrophes in the background, and, well, you get the picture.So what is reinsurance?
Reinsurers face a double challenge not shared by most companies. Not only must reinsurers define their little-known business for many shareholders; they cannot rely on photographs or simple illustrations alone to explain their products and services. We do not make cars, soda pop or household cleaners, even the last of which can be the subject of an interesting snapshot. We must describe our business under SEC rules, but written definitions command less reader attention than professional photographs.

Many reinsurance company annual reports have tackled this industry image challenge in two ways: ad reprints and artistic arrangements. Chartwell, for example, groups photos of refineries, automobiles, ships in a storm and buildings on fire (among others), each representing a type of risk it insures or reinsures. We may not build the factory or steer the ship, but we keep those that do in business. Last year PartnerRe reviewed the year of natural catastrophes in pictures, many so sharp or moving that you might have skipped over the management portraits. We know it is a property reinsurer from the start. The two photographic collections send other messages: in the first, the reinsurer is a highly diversified company; in the second, the reinsurer closely monitors climatic events and applies that expertise to its core functions.

Recycling successful advertising campaigns in the annual report is an excellent and cost-effective way to reinforce an image sought by the company. The reinsurer has probably expended many hours and dollars developing a handful of advertisements conveying a single message, so why not leverage that investment. The 1998 Risk Capital Re report arrays several distinctive ads as well as private investment tombstones along a timeline; the resulting image is a company that executes a unique strategy, year after year. The 1997 PartnerRe report features its popular ad campaign announcing the SAFR merger and the benefits from that union. Like an old song, a familiar phrase or picture can elicit a positive reaction even greater than when it was introduced.

Words count
One obvious change over the years is that companies, including reinsurers, are using fewer words. Most Chairman Letters to Shareholders run three pages, in contrast to the four or five-page length more common a few years ago. Companies with longer letters write a page or two less. Several reinsurers shortened or dropped yet another discussion of the soft market and its challenges, which may reflect changing conditions or less repetition or both.

As companies use more pictures and less text, they try to get more mileage from the few words they do use. Open almost any annual report or marketing brochure, from reinsurers to restaurants, and you will see phrases and full sentences enlarged, boldened, quoted, or highlighted. When the words are left in context, the effect is to impart more meaning to them at the expense of others. In contrast, several reinsurers pull strong statements from the text to reprint them - and maybe enlarge, bolden, quote, or highlight them, too - on a separate page or area, for greater impact and less reader distraction. Like recycling ads, double use of one significant statement or phrase can be effective and cost-effective.

A single, powerful statement can set the tone of the report and call attention to the message embedded in subsequent text or graphics. The Trenwick report begins with a simple quote on the difficult market and the company's ability to ride it out, as it has outlasted other difficult markets. The Everest report also extracts significant statements from the Chairman's Letter and President's Review emphasising discipline and opportunities, the theme of each editorial. One simple ivory page inside the cover states “Continued Improvement” to put the entire report in context.
A boxed or set-off quote is one way to make your statement loud and clear, just in case the cover, photos, charts, or other images do not. In most reports using quotes, Trenwick and Everest included, additional images were few and moved back, letting the highlighted words tell the main story.

Closing arguments
The collection of reinsurer annual reports from 1999 is quite different from that of 1989, in number and composition. Like the reinsurance industry in general, steady consolidation has left fewer companies on the publicly traded list. But a dwindling number is not the only interesting change. The largest reinsurers, including General Re and American Re, are now gone from the public company domain; when National Re folded into General Re, which later folded into Berkshire Hathaway, two key places were lost. Transatlantic and Everest now lead a list dominated by small to mid-size companies, many of them relatively new to the reinsurance community.

As industry consolidation continues through 1999 and 2000, which it surely shall, the number of publicly traded reinsurance companies will decline further. NAC Re shareholders just cast their proxy votes in favour of the XL merger, ultimately removing another annual report from the group. It is certainly possible that new capital and IPO's will keep pace, but likely the exits will outnumber the entrants.

For now, we can get to know a few companies through annual reports replete with colourful pie charts, innovative ads, and friendly employee photos. Save them!

Author's note: The annual reports and pages were selected on the basis of variety, editorial content and space limitations, and by no means signify any substantive review process. For an excellent (and fun) overview of the annual report process, I recommend The Addison Annual Report Beginner's Guide (Addison 1998), available from Addison offices in New York, Chicago and San Francisco. Another helpful resource is the Corporate Annual Report Newsletter published monthly by Lawrence Ragan Communications, Inc. in Chicago.

Mindy Pollack is Manager, Client Service & Communications, at Risk Capital Reinsurance Company in Greenwich, CT.
She is also an attorney with experience in reinsurance law, contracts, claims, and regulation.