GRAPEVINE, TEXAS–Companies facing a rating evaluation should work to ensure that no surprises or mysteries face the analysts examining them, insurance industry professionals advised at a meeting here.
The comments came at the National Association of Mutual Insurance Companies annual convention in Grapevine, Texas.
"Clear and consistent communication is critical," said Greg Heerde, an executive vice president with AON Re Services Inc. In those communications, he said, the company being evaluated should take the lead.
"It's the management team's responsibility to tell the story," he said. Simply asking an analyst what they want to know and responding may seem like a solid plan for companies, Mr. Heerde explained, but a short and to-the-point meeting is not necessarily a productive one.
By taking a proactive role in the rating evaluation, he said, companies can highlight their strengths and differentiate themselves from other companies the analyst evaluates.
"It's your responsibility to get these things out there and talk about them" he said.
Many companies, Mr. Heerde noted, view speaking to an analyst as roughly akin to going to the dentist, but a consistent dialogue can help companies put their experience for the year into context and avoid a shock when their annual appraisal comes up.
"The worst thing you can do is have a surprise in your annual report, which agencies actually read, and not have it in context," he said.
Additionally, Mr. Heerde acknowledged that insurers may not want to bring up potential problematic issues in speaking with an analyst, but doing so can be important. Insurers may not want to "lead with your chin," he noted, but analysts are not blind to company problems.
"Your chin is exposed," he said. "If you don't discuss it, they're going to assume you didn't notice."
An important aspect of dealing with rating agencies, he said, is to go beyond surface measures. An insurer may take a number of steps to implement enterprise risk management, he said, but they should also be able to explain what those measures mean to the company.
A "great question to be asked," he said, is "How are you managing your company differently" based on your ERM [enterprise risk management] procedures.
Executives speaking at the convention said that one aspect of good risk management is, in fact, strong preparation for an evaluation.
"It's important, at the end of the day, that the analyst walks out of the room with a document that is self-explanatory," said Darwin Copeman, president and chief executive officer of Cameron Insurance Companies. "Anticipate any question they can ask and answer it before it is asked."
Stuart Henderson, president and CEO of Western National Insurance Group, said the presentation given during an evaluation meeting should be composed specifically for that meeting. "A cut-and-paste job looks like a cut-and-paste job," he said, adding it is also important that those giving the presentation be familiar with all of the information and prepared to answer questions.
At the end of the meeting, the speakers said insurers should consider asking the analyst for their thoughts, what their recommendations might be, or for steps that could be taken to improve their rating.
Additionally, Mr. Copeman said, companies shouldn't be afraid to let an analyst know what they are looking for.
"We always close with a request," he said.
Given the time and expense required to adequately prepare for an evaluation, the question arose whether a rating was worth the work. Mr. Copeman explained that a good rating can open the door to new business with agents who are unfamiliar with the company. "We think of it as the price of admission," he said.
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