Investments in good reputation bring compound returns

Reputation is paramount.

It is important that others have a clear idea of who you are and what you do.

It also saves a lot of time and work.

For instance, The Insurance Insider is known first and foremost as being a very strong news publication that is good at finding out things that the subjects of the stories may rather have stayed private. Our reputation frames our engagements with people in the market. For better or worse, people have a perception of what to expect when they meet one of our journalists.

Often a first encounter begins with the warning: “Watch out what you say to him/her, (s)he’s with the Insider.”

But this also means that, if people have news to tell, they know where to come to tell it.

After years of knocking on doors and cold calling, we have built a reputation that means we sometimes get stories “for free”.

We get the occasional anonymous tip-off – the fabled brown envelope left in reception by “a gentleman who declined to give his name”.

And sometimes the tip is face to face. We may be told a story by someone because we’re “going to find out anyway and I might as well tell my side of it and make sure you don’t miss any of the finer details”.

We still far prefer to find stuff out for ourselves as we like to be in control of what, when and how we write, but I suppose we have earned the odd easy win. We trade off our good reputation.

It is crazy how reputation can still be an underrated commodity in insurance.

After all, unless we join our collateralised ILS brethren, our good reputation is the product. We go around selling contracts that say we promise to pay if things go wrong.

If no-one believed us, we wouldn’t get very far.

RenRe rightly has a superb reputation, built over a similar timeframe to The Insurance Insider.

Some 25 years of outperformance and being known as smart and savvy compounds into a relative premium stock rating, but also a premium reputation. Businesses like Ren get offered deals that others don’t because counterparties seek them out. The club deal, the private layer.

The same goes for M&A. If you are a seller who doesn’t have to sell to the highest bidder, you have the luxury of picking counterparties with a good reputation. Their good reputation and judgment enhance yours.

The sale of TMR to RenRe has exploded the myth of large Japanese groups as “forever owners”.

That may be true, but they are still sellers that place an extraordinarily high priority on their reputation for excellent conduct in the marketplace.

This priority extends to mergers and acquisitions.

TMR’s small relative size to its parent meant that it didn’t have to run the deepest and most highly competitive sale process if it didn’t want to.

The difference between a few points of premium multiple either way was immaterial to the group. Of far greater importance to Tokio would be any real or perceived damage to the group’s huge intangible stock of excellent reputation.

Selling to a credible and smart buyer like RenRe is simply worth more to Tokio than divesting to a buyer with a lesser reputation.

This means RenRe wouldn’t have to pay as much as its notional rivals in the process.

A quarter of a century of positive reputational compounding meant the Bermudian secured highly favourable terms.

But every penny of discount was hard-earned – there are no free lunches. Insiders can vouch for that.