Measuring Value

When reputation value is at a premium, companies can sell more, faster, and at a higher price; obtain labor, vendor and supplier services, and capital at a lower cost, and hold both regulators and activists at bay.

Reputation measurement is a part of good risk governance and risk management. The value measure of an organization’s reputation is the accumulated revenue and cost-savings arising from stakeholders’ expectations of experiential or remunerative benefits from an association, product, or service. Healthy corporate reputations create a value premium.

“We overcame the challenge of valuing reputation by fusing principles of behavioral economics with the rigors of financial accounting.”

Nir Kossovsky, CEO Steel City Re

Reputation measurement by Steel City Re involves models of expected stakeholder behaviors that impact cash flow. Using big data quantitative indicators of stakeholder expectations, Steel City Re has pioneered synthetic quantitative measures of reputational value. The reputation premium-finding ability of our metrics can help companies insure, manage, and arbitrage reputation risk with quantitative rigor.

Steel City Re’s parametric solution is “insurance to a model” based on a reputational value index. A commonly cited example of “insurance to a model” is automobile loss indemnification based on a Kelly Blue Book value.

For reputation value insurance, the model is a normalized multi-scalar index using weekly expectations for future economic performance and equity expectation variance to estimate departures from the reputational value range norm. The Index utilises 21- years of weekly reputational value data for about 7800 companies at a single name resolution.

Steel City Re has been engaged in reputation measurement since December 31, 2001 from indications of expected stakeholder behaviors captured by a diversity of publicly accessible prediction markets. Steel City Re acquires these data from Factset (NYSE: FDS), a commercial data aggregator, and transforms them into synthetic measures of reputational value through computer-driven algorithms that involve no human subjective influence.

The major categories of inputs into our “reputation premium finder” reflect the expected economic impact of the behavior of customers, equity investors, creditors, suppliers, and market analysts. The components are joined arithmetically with final values within the range of 0-1. The unit of measure is the Gerken% (GU%).

As of 1 July 2022, Steel City Re’s database comprised 1071 continuous weeks of calculations totaling 7.6 million unique values from a median of 7419 public companies per week.

These data and their mathematical progenitors are used by some underwriters at Lloyd’s, and are also used for public equity indices such as the RepuStars Variety Index (Ticker: REPUVAR) and the Conscious Companies ETF (Ticker: KRMA). As of 30 December 2021, a serial equity portfolio named RepuSPX begun 31 December 2001 of reputationally healthy but undervalued companies identified algorithmically from the constituents of the S&P500 index is outperforming the parent S&P500® index by nearly 500%.

The actuarial models derived from this large pool of metrics support the pricing and underwriting of risk transfer solutions. Such models typically comprise overlapping data pairs distributed over more than 125,000 simulated reputation value loss indemnification years. The simulation data sets contain more than 10,000,000 pairs of RVM% and loss measures including more than 25,000 loss events.

Relevant Articles

Reputation value arbitrage: As of August 26, 2022, the reputation-linked equity portfolio is out-performing the S&P500 Index by 443.99%.

August 28, 2022

“As of August 26, 2022, the RepuSPX premium-seeking equity portfolio, based on the same metrics used for parametric reputation insurance, is out-performing the S&P500 Index …
READ MORE
Reputation Premium and Arbitrage 30 July 2022 RepuSPX

July 30, 2022

Reputation premium and arbitrage. “As of July 29, 2022, the RepuSPX premium-seeking equity portfolio, based on the same metrics used for parametric reputation insurance, is …
READ MORE
Reputation and trust. Reputation is an expectation—anticipation or dread—creating value through present behavior.

July 25, 2022

Reputation and trust: “The drumbeats of bad news just keep coming for San Francisco, already one of the US cities hit hardest economically by the …
READ MORE