Five things to look out for in the Q3 results

Insurers’ third-quarter and nine-month results will shortly be upon us. RSA, Aviva and RBS Insurance are all due to report next week, and European heavyweights Allianz, Zurich and Ageas the week after.

And while several big brokers have already reported, there are still Marsh’s and JLT’s to look forward to in November.

While the prospect of columns of numbers may not set most people’s pulse racing, especially with much of the industry forecasting weak to non-existent growth prospects, the third-quarter announcements could provide some handy pointers about where the market is going and what industry chiefs are thinking.

1. Reserve releases (or lack thereof)

Insurance chief executives have been banging on for ages about how the current level of reserve releases is unsustainable, and how more recent years have far less in them. But with the exception of Admiral – which saw its reserve releases drop to £4m from £17.3m in the first half of this year – evidence of this has been scant to date. Could it start to emerge in the third quarter?  

Also, watch out for any reserve strengthening. Unless you are RBSI or Equity Red Star, this feature has been thankfully absent from results in recent years, but may start to make a comeback as pressure and losses mount.

2. Cost cutting

Because of persistent softness in many lines of business, coupled with the impact of economic woes on insurance spending, there is generally less money coming in at both insurers and brokers.

To avoid making losses, companies need to make sure there is also less money going out, and so there could be more announcements about staff cuts, efficiency drives and internal reorganisation to save money. Savings could come from anywhere, except of course the all-important area of top executives’ pay.

3. Referral fee disclosures

Thanks to Jack Straw, referral fees are now big news. Some companies, mostly insurers, have succumbed to pressure to reveal how much they make from these controversial payments, but others are holding back. Could they break cover in their third-quarter results? Or will the matter be obscured by vague language or, heaven forbid, glossed over altogether?

4. Words of wisdom

While most people’s eyes go straight to the numbers, it would be foolish to ignore the statements from chairmen and chief executives. Yes, these are often glib, oversimplified and self-congratulatory accounts of performance, but they can be a surprising source of juicy titbits. Recent examples include Robert Hiscox’s attack on broker pay, and Novae chairman John Hastings-Bass’s assertion that his company was considering quitting the UK.

Also watch out for soothing words designed to appease shareholders in today’s troubled times, such as Patrick Gallagher’s assurance’s in Arthur J Gallagher’s third-quarter results that rates are showing signs of hardening.  

5. Estimate check

When reading results, it’s always worth arming yourself with companies’ previous assertions and estimates to check whether they have made good on them. Pay particular attention to anyone who has made bold claims about how much contribution they expect from acquisitions, how little their restructuring will cost them or how big an improvement they expect to see in certain business lines. In tough times, these targets can slip.