The soft market only highlights the problems faced by listed companies
It can’t be easy running a listed reinsurance company.
It seems chief executives of such firms are constantly being pulled in several directions. Not only do they need to satisfy the demands of their shareholders and clients, but they also need to ensure that pressure from either side does not cloud their underwriting judgment.
This is never clearer than during periods of soft or softening rates. Leaders’ underwriting instincts tell them to pull back from unprofitable business or raise rates, but shareholders clamouring for growth augments clients’ demands for cheaper cover in tougher times.
While unlisted firms also have shareholders to satisfy, listed firms’ owners are arguably less likely to be general investors rather than reinsurance experts, and if private firms’ backers are dissatisfied, it isn’t immediately registered in glaring red on stock exchanges’ ticker data for the world to see.
As this month’s cover story shows, investors have trouble getting to grips with the (re)insurance industry, and the resulting depressed stock market valuations can either limit M&A opportunities or make the companies look like takeover targets.
Listed companies also have to file regular financial statements to regulators and the stock exchange. While public disclosure of performance is clearly a good thing, does it really make sense to scrutinise the quarterly results of an industry that renews the bulk of its business on an annual basis and that is routinely hit by big losses?
2010 is a case in point: some reinsurers’ first-quarter and first-half results must have looked pretty grim to the outside world, but on an annual basis, many are likely to look much more healthy as a result of the more benign last two quarters.
Could it be time to acknowledge that a stock market listing and reinsurance underwriting are incompatible? Or does the industry simply need to get better at managing the two?
Ben Dyson is assistant editor, Global Reinsurance