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Shareholder Value Measures in Non-Life Insurance

Shareholder Value Measures in Non-Life Insurance

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Shareholder Value Measures in Non-Life Insurance

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  1. Shareholder Value Measures in Non-Life Insurance Richard Rodriguez Richard Bland Graham Fulcher Richard Kelsey Richard Shaw Sean Laird

  2. Format of the Presentation • Introduction to shareholder value • Shareholder Value case study • Analysis of Shareholder Value Measures • Wrap up

  3. Shareholders Senior Executive The Business Staff Introduction to shareholder value

  4. Case Study on The Independent Insurance Company

  5. A Shareholder Value Strategy for Independent Insurance Group • Why choose Independent ? • A pure non-life UK listed insurer. • No declared shareholder value strategy in the 1999 Report and Accounts • Our approach • Identify elements already in place e.g. • Performance measures stated in Report and Accounts; • Directors’ Remuneration; • Link with the company’s “Vision and Values” statement • Artistic Licence for the missing bits....

  6. Our Strategy For Independent • To deliver • Above median growth of Earning Per Share (EPS) versus FTSE Mid 250 companies excluding Investment Trusts. • Annual growth in EPS of at least RPI+2%. • Chosen markets • Insurance and risk management solutions to commercial and industrial organisations,high net worth individuals and affinity groups in Europe. • Strategy • Focused and disciplined underwriting principles • Long term business relationships with a small panel of highly professional insurance intermediaries • Innovation • Market leading service

  7. Shareholder Value Measures Non- Financial • Shareholder communication • Detailed Review pages in Report and Accounts • Senior executives • Experience • Credibility (past performance) • Setting out forecasts and achieving them • Business KPIs (Financial) • Gross Written Premium • Return on Capital Employed • Spare Capital (for future growth) • Retained Profits (after dividend • Staff • Training “Investor in People” • Retention ?

  8. Shareholder Value Measures Financial • Shareholder Wealth • Growth in EPS • Senior Exec Remuneration • Incentive (Share) Plans aligned to growth in EPS • Business KPIs (Financial) • Gross Written Premium • Return on Capital Employed • Spare Capital (for future growth) • Retained Profits (after dividend • Key Staff Remuneration • Aligned to performance of financial AND non-financial business KPIs ?

  9. Integrated Shareholder Value Targets • Average annual growth in EPS of RPI + X • Determine RPI and the required X • Convert EPS into annual profits and required annual underwriting profits and strategy targets • Forecast profitability of current business • Allocate capital required to support this business (commensurate with Standard and Poors ‘A’ rating • Identify likely new markets, growth opportunities and higher margin business • Plan business growth to achieve growth in profits • Calculate profits to be retained in business as capital to support business growth (subject to company dividend policy and capital requirements) • Incentivise key staff to achieving targets

  10. Analysis of Shareholder Value Measures

  11. Robustness of Measures • Approach • Simple model office • 3 classes of business • 5 measures of shareholder value • Tracking the measures • Over a 4 year period • For a growth, decline and static base scenario • Findings • Different results according to measure • Optimal strategy varies by measure • Trend more important than individual value

  12. Measure against measure

  13. Trend over time (base)

  14. Trend over time (growth)

  15. Trend over time (decline)

  16. Wrap Up • Shareholder Value is about • Profit for shareholders • Alignment of objectives • Effective and consistent communication • Organisation’s culture • It has been around for a long time, however, • Not universally adopted by all organisations • Communication approaches vary • No market agreement as to the most appropriate measures to use • No single measure appropriate all of the time