Canada’s public life insurance companies are focusing their strategies on increasing shareholder value, according to a new study by Tillinghast-Towers Perrin.

Some respondents report success already, by balancing growth through acquisition with growth through better operational efficiencies. “Since the wave of demutualizations over the last few years, the major players in Canada’s life insurance sector have had to come to grips with the challenge of creating, measuring and delivering shareholder value to a market that has very little understanding of how the industry grows,” said Mike Lombardi, leader of Tillinghast’s financial services practice in Canada, and co-author of the study. “Both institutional and private investors have little information to go on when considering buying or selling shares in the sector, and because the industry itself is so complex, it’s hard for markets to understand the value of these insurance companies.”

Key findings of the study focused on four areas of shareholder value management: growth strategies, financial metrics, communication with the market, and organizational alignment. It found that the majority of respondents will continue to use mergers and acquisitions as the top strategy to increase shareholder value. The study indicates that industry executives have reservations about the current metrics used to measure shareholder value, such as Return on Equity and revenue/sales growth.

About 78% of respondents believe that the intrinsic value of their company is higher/much higher than the market value and 76% believe that the market’s reliance on Generally Accepted Accounting Principles measures leaves companies undervalued and vulnerable to takeover. Other factors identified by respondents as sources of under-valuation include the complexity of industry accounting and financial practices, the short-term focus of investors and the complexity of insurance products.

“When the life insurers demutualized and became publicly-traded companies, many investors became shareholders of life insurance companies for the first time” said Lombardi. “If shareholders don’t understand the insurance industry and how share value is created they can’t be expected to generate a demand for those shares.”

Respondents also said that aligning the organization and employees is key to increasing shareholder value. One executive stated, “our employees are strongly motivated to improve the company and increase shareholder value, but the tools are not in place to empower employees and create a ‘clear line of sight’ between that goal and what they actually do in their jobs.”