Over the last decade, the price/earnings and price/book ratios of many European insurers have fallen to low and undifferentiated levels, and many stock prices have become excessively driven by short-term macro issues. While the main factor behind this has been the exceptionally challenging market and economic backdrop, seemingly unconnected disclosures and reporting bases have been a major contributory factor. The underlying worry is that poor external reporting may be symptomatic of poor management information and a lack of strategic coherence. This is backed up by numerous PwC surveys over the years, with real evidence to support our position in our recent detailed assessment of the reporting of 20 leading European insurers.
While insurance share prices will continue to be heavily influenced by 'macro' factors, there is a lot more that management teams could be doing to help focus investors back on the economic fundamentals of the business. More specifically, by re-evaluating key investor strategies and how this is supported by financial reporting, management will be able to: