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
In this presentation we look are going to briefly cover what shareholder value means for a company, for those of you who have not read the paper.
We are then going to take you through a case study on the Independent Insurance Company using the principles outlined in the paper. For this I shall pass you over to Richard Kelsey.
We shall then look at the robustness of some Shareholder Value measures against the backdrop of a declining and growing book of business. For this I shall pass you over to Richard Bland.
Finally, we will wrap you the presentation and then take any questions you might have.

3. Introduction to shareholder value
Shareholders
Senior Executive
Staff
The Business
From a Shareholder’s perspective, Shareholder value is about the continued achievement and communication of value to shareholder’s in the business they have invested. In principle we are talking about profit maximisation.
Of particular interest to a shareholder will be the prospect of future profit as well as that delivered at the present time.
The Senior Executives are charged with :
Bridging the gap between the internal perception of a company’s value and that of the stock market. The Shareholder Value framework seeks to provide an environment where management can effectively bridge this gap by linking internal and external perspectives by making key aspects of a company’s capabilities and performance more transparent to investors.

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