Reputation: Some Thoughts From An Investor's Point of View
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Reputation: Some Thoughts From An Investor’s Point of View* Stefan Schu¨rmann Credit Agricole Cheuvreux, Bahnhofstrasse 18, Zurich 8001, Switzerland. E-mail: [email protected]
The author describes the reputation of the insurance industry in Europe from an investor’s angle. In the first part, he argues that the industry has suffered from a bad reputation in recent years, driven by ‘‘negative’’ events such as WTC, pension mis-selling or the U.S. Spitzer investigations. A changing framework, such as Solvency II, and the industry’s increased awareness of the importance of reputation contribute to a better picture for the industry. The author elaborates on a changing industry from different stakeholder viewpoints. In the second part, he explains the results of a small survey conducted among 10 major European investors in insurance stocks. The main finding is that investors’ valuation models do not explicitly deal with reputation. However, reputation does matter for investment decisions and the main factors influencing reputation from an investor’s angle are ‘‘management’’ and ‘‘communication’’. The Geneva Papers (2006) 31, 454–469. doi:10.1057/palgrave.gpp.2510094 Keywords: reputation management; measuring reputation; insurance industry; insurance valuation; European insurance
General analysis of reputation in European insurance industry Definition of reputation A possible definition of reputation1 is ‘‘the general opinion (or social evaluation) of the public towards a person, group of people, or an organisation’’. It is important to note that reputation is a dynamic phenomenon that is subject to change. In the case of an insurance company, accounting errors, overpromising of results, management corruption or poor communication can be negative issues for reputation. For restoring a damaged reputation, time can heal all ills, but a more effective and promising approach is intense stakeholder interaction on all levels. It can be argued that reputation is a top management issue, and may be one of the most important tasks and challenges facing management today. A more specific definition for the insurance industry can be taken from the U.K. regulatory body, the FSA, which defines reputational risk as ‘‘the risk that the firm may be exposed to negative publicity about its business practices or internal controls, which could have an impact on the liquidity or capital of the firm, or cause a change in its credit rating’’.2
* This article reflects the author’s personal opinion. 1 Source: Wikipedia online encyclopaedia. 2 Source: FSA (2005).
Stefan Schu¨rmann Reputation: Thoughts From An Investor’s Point of View
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Image and reputation Before continuing with this part, it must be stressed that there is a difference between the terms ‘‘image’’ and ‘‘reputation’’. Whereas image is rather a belief or evaluation (of an organization), reputation is a meta-belief or a belief based on others’ evaluations (of an institution). This difference means that reputation is more anonymous, whereas image is more tied to a subject.
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