'Peer'ing into the Future: How Do You Compare?

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Dan Smereck
Managing Director & Principal
Strategic Asset Alliance

Today, insurers are bombarded by investment managers and other sources with peer group related information. Many such peer group analyses are so lengthy they lose the ability to provide useful information that may improve the insurer receiving the report. At the Insurer Investment Forum XIX, SAA discussed key metrics insurers and pools should focus on.

You can learn more about the Forum here.

Key Highlights:

  1. Boards can get buried in peer data and may make the wrong decision or try to avoid looking “wrong” based on what the peer analysis shows.
  2. Often times insurers or pools are getting the wrong types of peers and might not know who their real peers are. We see a lot of comparisons to other companies that don’t have similar sizes, operations, etc., leading to misleading results.
  3. Key ratios for insurers and risk pools include: Expense Ratio, Loss Ratio, Operating Ratio, Leverage Ratio, Risk Assets-to-Surplus, and Reinsurance Recoverable-to-Surplus.
  4. At times internal matters, not numbers, need to be addressed. Risk Pools are much more collaborative than the commercial side, but all should strive for institutional goals similar to peers.
  5. Whether it’s underwriting, reserving, investments, reinsurance – Boards and staff are always asking, “These companies are better at ‘XYZ’, so why not us?” Instead they should ask, “how can this information lead us to ask better questions?”
  6. The quality of the leverage ratio can vary based on premiums, renewals, etc. For example, commercial insurers may be focusing on new business, while Risk Pools may focus more on new coverage. It’s important to be wary of this when making comparisons to other companies.
  7. Look at how many government bonds peers have, because if companies with huge allocations to gov. bonds have the flexibility to invest outside of that, they’re leaving money on the table in a significant way. Then ask, “is there something going on with their business model or regulation?”
  8. When comparing managers, attribution analysis helps with accountability; “if I’m paying for this type of investment style, is that what I’m actually getting (for the value)?”
  9. Peer Analysis should lead staff to ask more poignant questions to your investment experts (i.e. manager, advisor, etc.). It makes the investment process that much more robust. 

We hope you can join us for next year’s Insurer Investment Forum XX, held March 18-19, 2020 at the Fairmont Grand Del Mar: Add to Calendar.

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