INTRODUCTION TO SECTOR ANALYSIS: A FRAMEWORK FOR INVESTORS
The key to a company’s success depends on how well it executes its business model. This calls for optimising the allocation of limited resources to generate sustainable cash flows, for investing in new products, technologies, and services in responding to the wider competitive landscape or societal changes and mega trends, as well as for devising appropriate responses in the face of an evolving macroeconomic, regulatory, and political environment.
Different industries often require very different business models; and even within the same industry, the model that does add value to the business may vary somewhat from company to company.
To help investors undertake proper due diligence on a company, we have generated a framework of analysis designed to tease out the following: (1) whether the pertinent factors favour the firm in question; and (2) whether management is effective in executing its business model or value-generating strategies, while responding appropriately to its external environment.
This framework is customised to specific sectors and incorporates interviews with professionals within those sectors.
THE INSURANCE SECTOR
Insurance is a curious sector. In years gone by, it was regarded as something of a cash cow, with the likes of Warren Buffett treating the float as a source of money to be invested elsewhere. Insurance companies were also seen as sclerotic, with time-consuming processes that often placed the customer last. It’s not because these firms didn’t care. Instead, the characterisation reflected an
ingrained culture that didn’t quite know how to change.
To read more, download the full sector analysis for the Insurance Sector with accompanying question bank.
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