There are pros and cons to being a listed company. Some clear advantages are that a listing provides access to capital, creates a market valuation for your company, and imposes additional discipline. It will make you do everything in your power to maximise your performance in line with your self-imposed targets and the ambitions you have communicated to the outside world as well as make you provide a level of confidence for people’s future expectations. One disadvantage, however, is the reporting workload imposed on listed companies: as a listed company you have more obligations. As a result you cannot always use the same resources or take the same liberties in making certain choices.
One of your obligations as a listed company is to provide transparent communications about issues that may affect the value of the company. This includes quarterly reporting and timely publication of price-sensitive information. Of course you will keep shareholders abreast of the activities and developments within the company. But quarterly results only provide an overview of the financial results of a very limited period as well as some indicators to assess the general health of the company. So people should be careful not to focus exclusively on the past three months. And people certainly shouldn’t annualise quarterly results. As a listed insurance company, we operate in a sector that is subject to some volatility. Seasonal issues like hail storms, wildfires or floods, or profits from the sale of a particular building can disproportionately affect quarterly returns - these do not reflect the full year and therefore cannot be extrapolated to an annual figure.
We feel that quarterly discrepancies between expectations and reality weigh too heavily on a company’s valuation. Just take the solvency figures in our sector. They are of a much more volatile nature than they were under the previous solvency regime. If an insurance company has nearly double the ratio required by regulators, but ends up at 196% rather than the expected 198% in any given quarter, we believe this discrepancy is not particularly relevant. Often, these types of discrepancies are due to incidental occurrences analysts could not have predicted, such as slight shifts in the investment portfolio.
Therefore we believe that aside from scrutinizing the figures, we need to examine the story behind the figures as well. We should look at things like the quality of the client portfolio, of the products, of the investment portfolio and of the management. These factors tell us a lot more about a company’s financial health and future perspectives than models, indices, and spreadsheets ever could. We must admit that the insurance sector does not always make things easy for analysts and investors. We often launch new concepts which cannot be compared to any existing concepts. Moreover, various definitions may exist for the same concept, and the basic assumptions and sensitivity hypotheses we apply often differ. The sector absolutely needs to attempt to achieve better consistency and harmonization levels.
Personally I am very much in favour of transparent communications and quarterly reporting for listed companies, provided that they have a justifiable duty to keep their shareholders abreast of important developments and realised results. What is more, getting rid of quarterly reports would only lead to more interim communications throughout the year. So no, we shouldn’t abandon quarterly reporting. But let’s make sure that we do not jump to conclusions when assessing these interim results. Exceptional developments are and always will be difficult to predict. Let’s focus instead on a company’s consistency over time: a single quarter is not a reliable reflection of a company’s long-term performance.
Bart De Smet