Insurance M&A The Rapidly Changing Landscape TLT016 Speaker : - PowerPoint PPT Presentation

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

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. 4

State of the Market Tailwinds Headwinds   Prolonged Low Interest Rate Regulatory Uncertainty Environment  Geopolitical Risk  Competitive Landscape  Low Equity Market Valuations VS.  Higher Growth Rates in Emerging  Markets Anemic Economic Recovery   Strong Cash Positions/Excess Post-Crisis Risk Aversion Capital  Shareholder Activism  Foreign Buyers  Private Equity Buyers 5

Source: namic.org/inmagazine/14winter/ Navigating the Regulatory Maze 6

Equity Valuations – Price/BV 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 3.50 3.00 Price/Book 2.50 2.00 1.50 1.00 0.50 0.00 SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care Source: SNL Financial Database 7

Equity Valuations – P/E 45.0 40.0 35.0 30.0 Price/EPS 25.0 20.0 15.0 10.0 5.0 0.0 SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care Source: SNL Financial Database 8

Competitive Landscape – P&C 2015 NWP: $584.2B 2005 NWP: $426.8B Capital & Surplus: $432.3B Capital & Surplus: $680.8B 2,757 companies 2,671 companies State Farm Allstate 10% State Farm 5% AIG 10% 6% Berkshire Allstate 5% 6% Liberty Liberty 5% 5% All Others All Others Travelers 53% Travelers 54% 4% 4% Progressive Farmers 4% 4% Chubb Nationwide 4% 3% Progressive Nationwide Berkshire AIG 3% 3% Zurich Farmers 3% 3% 3% 3% Source: SNL Financial Database 9

Competitive Landscape – Life 2005 NWP: $521.1B 2015 NWP: $623.6B Capital & Surplus: $366.9B Capital & Surplus: $244.2B 961 companies 741 companies Northwestern MetLife Prudential MetLife 6% 13% 7% 9% New York Life 6% Voya All Others 5% Prudential 45% 6% AEGON 5% All Others Lincoln National 54% 4% Manulife 5% Mass Mutual AIG 4% 5% Manulife 3% Hartford State Lincoln 5% AEGON Securian National Principal New York Life Farm 3% 3% 4% 2% 3% 3% Source: SNL Financial Database 10

Competitive Landscape – Health 2005 NWP: $269.8B 2014 NWP: $526.9B Capital & Surplus: $143.0B Capital & Surplus: $ 60.4B 893 companies 1,060 companies UnitedHealth UnitedHealth 12% 10% Anthem 10% Anthem Inc 11% All Others Humana Aetna 48% 9% All Others 7% 51% HlthCare Svc Corp HlthCare Svc Corp 5% 5% Aetna Independence 4% Health Centene Humana 3% Independence 3% 3% Health WellCare Kaiser Highmark Kaiser EmblemHealth BCBS MI Highmark 2% 2% 2% 2% 2% 3% 3% 3% Company has an announced M&A transaction Source: SNL Financial Database 11

Competitive Landscape – Global Top 10 Global Companies in 2000 by Market Cap ($ in billions) Top 10 Global Companies in 2014 by Market Cap ($ in billions) AEGON $59.5 China Life $81.5 Ageas $40.2 AIA $66.1 Prudential Plc $38.4 Metlife $62.9 Aviva $21.1 Ping An $62.6 Metlife* $19.0 AXA $61.8 Prudential Financial* $13.9 Prudential Plc $59.6 Legal & General Group Prudential Financial $13.9 $42.8 AFLAC ManuLife $38.1 $12.6 China Pacific $34.7 Hartford $10.5 Generali $33.2 Alleanza Association $10.3 Americas Europe Asia Source: Goldman Sachs Research; *Market Cap estimated at 1.5x surplus; 2014 Statista.com; 12

M&A Transactions & Themes

M&A Transactions & Themes Small, Bolt-on Transformational/ AIG/Distress P/E, Specialty Scale Focused Transactions Sales Focused 180.0 120 110 107 107 102 160.0 97 100 90 88 140.0 81 79 78 120.0 80 Deal value ($B) No. of deals 100.0 60 80.0 60.0 40 40.0 20 20.0 0.0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Property & Casualty Life & Health Managed Care Multiline Total deals Source: SNL Financial Database 14

M&A Transactions & Themes Life Insurance M&A 20.0 $17.5 18.0 CPPI/Wilton Re $1.8 GreyCastle/SAC $0.7 Fairfax/Zenith $1.4 16.0 CPPI/TransAm $0.5 Athene/Liberty (RBC) $0.6 Manulife/Std Life $4.0 Sumitomo/Symetra $3.7 $13.5 14.0 $12.3 12.0 Deal value (B) DE Life/US Annuity $1.4 Aegon/Merrill Lynch Life $1.3 PRU/Hartford Life $0.6 MET/DELA & ALICO (AIG subs) $15.5 ACE/Combined Ins. $2.4 Athene/Aviva $1.5 10.0 Athene/Presidential $0.4 8.0 Aviva/AmerUS $2.7 PL/MONY $1.0 InvGrp/ScottishRE $0.6 SCOR/Generali’s US $0.9 PL/Chase $0.9 $5.5 $5.5 6.0 GAFG/Forethought $0.7 $5.0 Resolution/Lincoln $0.6 SCOR/Trans. RE $0.9 Dai-ich Life/PL $5.6 Meiji/Stancorp $5.0 Harbinger/Old Mutual $0.4 $3.6 4.0 Guggenheim/EquiTrust $0.4 SwissRe/New CA $0.5 2.0 $1.2 $1.1 $0.5 0.0 * 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Life & Health Strategic transactions are noted in blue; Financial transactions are noted in red Source: SNL Financial Database 15

M&A Transactions & Themes P&C Insurance M&A Exor/PartnerRe $6.6 Fosun/Ironshore $2.1 60.0 CM/Sirius $2.2 Endurance/Montpelier $1.4 $52.7 $53.0 50.0 Validus/Western World $0.7 TPG/Waranty Gp $1.2 Wright Ins/B&B $0.6 40.0 Liberty/Safeco $6.2 Marine/HC Tokio Marine/ PA Con. $4.7 C $7.4 Deal value (B) Tokio 30.0 ACE/Rain&Hail $1.0 Liberty/OH Casualty $2.7 Fairfax/Zenith $1.3 Travelers/Dom. of Canada $1.1 Mapre/Com. $2.3 Dupperreault Grp/SAC Re $0.6 QBE/WintherthurUS $1.2 American Family/Homesite. $0.6 Munich Re/Midland $1.3 Zurich/21 st Century $1.9 Enstar&Stone Pt/Torus $0.7 Alleghany/Transatlantic $3.5 20.0 Farmers/AIG auto $1.9 Allstate/White Mt $1.0 $15.9 Validus/IPC $1.7 Nationwide/Harleysville $0.8 ACE/Chubb $28.4 Fairfax/Odyssey Re. $1.0 QBE/Balboa $0.7 $11.6 Catlin/Wellington $1.1 QBE/Preatoria $0.8 10.0 $7.8 $7.4 $6.8 ACE/ABA (Brazil) $0.9 $6.4 $4.6 $4.6 $2.0 0.0 * 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Property & Casualty Strategic transactions are noted in blue; Financial transactions are noted in red Source: SNL Financial Database 16

Selected M&A Transactions Source: SNL Financial Database 17

M&A Transactions & Themes  Significant dry powder with PE firms will propel M&A forward Private Equity  Could serve as a catalyst for higher premiums Dominates  Overseas players interested in establishing U.S. beachhead in niche businesses Increase  Retrenchment from U.S. by European insurers due to Solvency II requirements in Cross-Border  Chasing GDP growth by North American/European insurers in Asia/Latin America Transactions  Focus on accretive use of capital/bolt-on acquisitions to offset lack of organic growth Niche prospects Focused/ Specialty  Renewed focus on core competencies by shedding peripheral businesses Acquisitions 18

M&A Transactions & Themes  There has been a resurgence of large strategic deals in 2015 Resurgence of Large Strategic  Regulatory concerns over non-bank SIFI will limit large, strategic transactions Deals among the top life insurers  Low valuations with little catalyst for stock price performances remain a significant Low obstacle to consolidation – even in overcrowded, highly-fragmented sectors Valuation/ Regulatory  Continued regulatory overhang as industry deals with the explosion of regulatory Uncertainty requirements and authorities  Cash will continue to be the currency of choice, driven by significantly improved balance sheets with excess capital “Cash is King” 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 continue 21

Outlook & Predictions  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 22