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Insurance M&A – The Rapidly Changing Landscape

TLT016

Speaker:

• Grace Vandecruze, Managing Director, Grace Global Capital LLC

Learning Objectives

• State of the Market

Regulatory Uncertainty

Equity Market Valuations

Competitive Landscape

• M&A Transactions & Themes

Noteworthy Transactions

Key Themes

• Outlook & Predictions

State of the Market

The Insurance Industry is on the

Cusp of A Radical Transformation.

The consolidation of two powerhouses in the P&C sector, along

with the impact of foreign buyers in the U.S. is reshaping the

insurance landscape.

This presentation examines M&A - The Rapidly Changing

Landscape, with a focus on P&C, Life and Health Sectors.

State of the Market

4

State of the MarketHeadwinds Tailwinds

Prolonged Low Interest Rate

Environment

Competitive Landscape

Higher Growth Rates in Emerging

Markets

Strong Cash Positions/Excess

Capital

Foreign Buyers

Private Equity Buyers

Regulatory Uncertainty

Geopolitical Risk

Low Equity Market Valuations

Anemic Economic Recovery

Post-Crisis Risk Aversion

Shareholder Activism

VS.

5

6

Navigating the Regulatory Maze

Source: namic.org/inmagazine/14winter/

Equity Valuations – Price/BV

7

Pri

ce/B

oo

k

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care

Averages 10Y 5Y 1Y Current

U.S. L&H Insurers 1.24x 0.99x 0.95x 0.97x

U.S. P&C Insurers 1.30x 1.24x 1.30x 1.32x

U.S. Reinsurers 1.10x 0.93x 1.03x 1.04x

U.S. Managed Care 2.03x 2.07x 2.85x 2.94x

Source: SNL Financial Database

Equity Valuations – P/E


Pri

ce/E

PS

8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care

2005 NWP: $426.8B

Capital & Surplus: $432.3B

2,757 companies

2015 NWP: $584.2B


2,671 companies

Competitive Landscape – P&C


State Farm 10%

AIG6%

Allstate6%

Liberty5%

Travelers4%

Farmers4%

Nationwide3%

Progressive 3%

Berkshire 3%Zurich

3%

All Others53%

9

State Farm10%

Allstate 5%

Berkshire5%

Liberty5%

Travelers 4%

Progressive4%

Chubb4%

Nationwide3%Farmers

3%

AIG3%

All Others54%

2005 NWP: $521.1B


961 companies

2015 NWP: $623.6B


741 companies


MetLife13% Prudential

7%

Voya5%

AEGON5%

Manulife5%AIG

5%

Hartford5%New York Life

4%Principal

3%

Lincoln National

3%

All Others45%

Competitive Landscape – Life

10

MetLife 9%

Northwestern6%

New York Life6%

Prudential 6%

Lincoln National4%

Mass Mutual 4%

Manulife 3%

AEGON3%

State Farm 3%

Securian 2%

All Others54%

2005 NWP: $269.8B

Capital & Surplus: $ 60.4B

893 companies

2014 NWP: $526.9B


1,060 companies

Company has an announced M&A transaction


UnitedHealth 12%

Anthem Inc11%

Aetna7%

HlthCare Svc Corp

5%

Independence Health

3%Humana3%

Highmark 3%

BCBS MI 3%

EmblemHealth 3%

Kaiser2%

All Others48%

UnitedHealth 10%

Anthem10%

Humana9%

HlthCare Svc Corp5%

Aetna 4%

Centene 3%Independence

Health 2%

Highmark 2%

Kaiser2%

WellCare2%

All Others51%

Competitive Landscape–Health

11

Americas Europe Asia

Source: Goldman Sachs Research; *Market Cap estimated at 1.5x surplus; 2014 Statista.com;

$59.5

$40.2

$38.4

$21.1

$19.0

$13.9

$13.9

$12.6

$10.5

$10.3

AEGON

Ageas

Prudential Plc

Aviva

Metlife*

Prudential Financial*

Legal & General Group

AFLAC

Hartford

Alleanza Association

Top 10 Global Companies in 2000 by Market Cap ($ in billions) Top 10 Global Companies in 2014 by Market Cap ($ in billions)

$81.5

$66.1

$62.9

$62.6

$61.8

$59.6

$42.8

$38.1

$34.7

$33.2

China Life

AIA

Metlife

Ping An

AXA

Prudential Plc

Prudential Financial

ManuLife

China Pacific

Generali

Competitive Landscape–Global

12

M&A Transactions & Themes

M&A Transactions & ThemesSmall, Bolt-on

TransactionsAIG/Distress

Sales

Transformational/

Scale Focused


P/E, Specialty

Focused

14

102 107

88

81

110 107

97

90

79 78

0

20

40

60

80

100

120

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

No

. of

de

als

De

al v

alu

e (

$B

)

Property & Casualty Life & Health Managed Care Multiline Total deals


*

Life Insurance M&A

$5.0$5.5

$1.2$0.5

$17.5

$1.1

$5.5

$3.6

$13.5

$12.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

De

al v

alu

e (

B)

Life & Health

Aviva/AmerUS $2.7InvGrp/ScottishRE $0.6PL/Chase $0.9

Aegon/Merrill Lynch Life $1.3ACE/Combined Ins. $2.4

SwissRe/New CA $0.5

MET

/DEL

A &

ALI

CO

(A

IG s

ub

s) $

15

.5

Fairfax/Zenith $1.4Athene/Liberty (RBC) $0.6

SCOR/Trans. RE $0.9Harbinger/Old Mutual $0.4Guggenheim/EquiTrust $0.4

CPPI/Wilton Re $1.8GreyCastle/SAC $0.7CPPI/TransAm $0.5Manulife/Std Life $4.0

PL/MONY $1.0SCOR/Generali’s US $0.9GAFG/Forethought $0.7Resolution/Lincoln $0.6

DE Life/US Annuity $1.4PRU/Hartford Life $0.6Athene/Aviva $1.5Athene/Presidential $0.4

Sumitomo/Symetra $3.7

Dai

-ich

Life

/PL

$5

.6

Me

iji/S

tan

corp

$5

.0

Strategic transactions are noted in blue; Financial transactions are noted in red


15

*

P&C Insurance M&A

$4.6

$11.6

$15.9

$6.4$7.4 $6.8

$2.0

$4.6

$7.8

$52.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

De

al v

alu

e (

B)

Property & Casualty

ACE/ABA (Brazil) $0.9

Toki

oM

arin

e/H

CC

$7.

4

Exor/PartnerRe $6.6Fosun/Ironshore $2.1CM/Sirius $2.2Endurance/Montpelier $1.4

Validus/Western World $0.7TPG/Waranty Gp $1.2Wright Ins/B&B $0.6

Catlin/Wellington $1.1QBE/Preatoria $0.8

Liberty/OH Casualty $2.7Mapre/Com. $2.3QBE/WintherthurUS $1.2Munich Re/Midland $1.3

Zurich/21st Century $1.9Farmers/AIG auto $1.9Validus/IPC $1.7Fairfax/Odyssey Re. $1.0

ACE/Rain&Hail $1.0Fairfax/Zenith $1.3

Alleghany/Transatlantic $3.5Allstate/White Mt $1.0Nationwide/Harleysville $0.8QBE/Balboa $0.7

Travelers/Dom. of Canada $1.1Dupperreault Grp/SAC Re $0.6American Family/Homesite. $0.6Enstar&Stone Pt/Torus $0.7

AC

E/C

hu

bb

$2

8.4

Strategic transactions are noted in blue; Financial transactions are noted in red


Liberty/Safeco $6.2Tokio Marine/ PA Con. $4.7


$53.0

16

Selected M&A Transactions

Source: SNL Financial Database 17


Private Equity

Dominates

Increasein

Cross-BorderTransactions

Niche Focused/Specialty

Acquisitions

Significant dry powder with PE firms will propel M&A forward

Could serve as a catalyst for higher premiums

Overseas players interested in establishing U.S. beachhead in niche businesses

Retrenchment from U.S. by European insurers due to Solvency II requirements

Chasing GDP growth by North American/European insurers in Asia/Latin America

Focus on accretive use of capital/bolt-on acquisitions to offset lack of organic growth

prospects

Renewed focus on core competencies by shedding peripheral businesses

18


Resurgence of Large Strategic

Deals

Low Valuation/ Regulatory Uncertainty

“Cashis

King”

There has been a resurgence of large strategic deals in 2015

Regulatory concerns over non-bank SIFI will limit large, strategic transactions

among the top life insurers

Low valuations with little catalyst for stock price performances remain a significant

obstacle to consolidation – even in overcrowded, highly-fragmented sectors

Continued regulatory overhang as industry deals with the explosion of regulatory

requirements and authorities

Cash will continue to be the currency of choice, driven by significantly improved

balance sheets with excess capital

19

Outlook & Predictions

20

Outlook & Predictions Market Segmentation / More Focused Business Models

Focus of major players on being either one of globalization, domestic

dominance, or regional / niche markets

Continued rationalization of non-core / subscale businesses

Regulatory Uncertainty will persist

Convergence of global solvency standards

What role will the U.S. regulatory position play?

The Fed’s influence over the insurance industry will continue21

Foreign Buyers and Private Equity Firms will continue to dominate

Capital Management

Recalibration of ROE targets

Continued regulatory and rating pressures

Investment in Growth Market

Outlook & Predictions

22

Thank YouContact InformationGrace Vandecruze

Managing Director

Grace Global Capital LLC

477 Madison Avenue, 6th Floor

New York, NY 10022

Phone: 917-501-3565

[email protected]

www.graceglobalcapital.com

Grace Vandecruze is the Founder and Managing Director of Grace Global Capital LLC, a consulting firm

providing financial advisory, restructuring, valuation and capital-raising services to insurance regulators and

companies since 2007. She advised the Attorney General of Delaware on the Highmark affiliation with Blue

Cross Blue Shield of Delaware. In addition, she has served as financial advisor to Insurance Commissioners in

several states including New Jersey, Indiana, Maryland, and North Carolina. She was a Managing Director at

Swiss Re and was responsible for the firm's regulatory advisory practice in the insurance and financial services

industries. She has extensive expertise in mergers and acquisitions and capital raisings, and most notably she

provided expert testimony on the valuation of Conseco during the largest bankruptcy in the insurance industry.

Prior to joining Swiss Re, she was a Vice President at a private equity firm specializing in the insurance industry

and an Associate in the Financial Institutions Group at Merrill Lynch. She earned an MBA in Finance from The

Wharton School at the University of Pennsylvania in 1994 and a BBA in Accounting from Pace University in

1985. Before attending The Wharton School, she was an auditor for six years at E&Y and Grant Thornton. She

is a CPA. She is also a licensed sailor and has participated in several mountain treks to Bhutan, Annapurna,

Kilimanjaro and Everest Base Camp.23

mailto:[email protected]

http://www.graceglobalcapital.com/

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