Evan Greenberg, the chief executive officer of Ace Ltd. (ACE), questioned the practice of forecasting results for Wall Street after analysts sought more specifics tied to the insurer’s projection for 2013 earnings.
Mike Zaremski of Credit Suisse Group AG and Morgan Stanley (MS)’s Greg Locraft pressed Greenberg for details today on a conference call after the Zurich-based insurer projected 2013 operating earnings of $6.60 to $7 a share, compared with $7.65 in 2012.
Greenberg said that while insurers are charging more for coverage, lower interest rates may limit investment income and changes related to taxes may pressure results compared with 2012. He sidestepped requests for specifics, saying “we only give guidance on a per-share basis, and we’re not going down that rabbit hole.” Ace slipped 1.2 percent to $83.90 at 4 p.m. in New York.
“I kind of wonder if guidance has outlived its usefulness for you guys,” Ian Gutterman of Adage Capital Management LP said on the call. “It seems every year at this time it causes confusion, or at least more years than not.”
Greenberg welcomed Gutterman’s remark.
“Everyone here is cheering, because we’ve said that to ourselves,” the CEO said. “My god, why are we doing guidance.”
Greenberg joins executives including Travelers Cos. (TRV) CEO Jay Fishman and Berkshire Hathaway Inc. (BRK/A)’s billionaire Chairman Warren Buffett in challenging the value of earnings guidance. Insurers’ earnings can fluctuate based on litigation tied to asbestos disputes, the prospects of clients’ businesses and the frequency of disasters such as earthquakes and hurricanes.
Fishman said in 2010 that he would stop giving annual guidance, in part because “catastrophes are fundamentally unpredictable.”
Buffett has written that he prefers to communicate with investors through his annual letters and a statement of principles he calls the Berkshire “owner’s manual.” In his 1999 letter, Buffett set out his leadership approach after welcoming new investors.
“We hope also that these new holders find that our owner’s manual and annual reports offer them more insights and information about Berkshire than they garner about other companies from the investor-relations departments that these corporations typically maintain,” Buffett said. “But if it is ‘earnings guidance’ or the like that shareholders or analysts seek, we will simply guide them to our public documents.”
Ace has advanced 22 percent in the past 12 months in New York trading. That compares with gains of 23 percent for Berkshire, 34 percent for Travelers and 14 percent for the Standard & Poor’s 500 Index.
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