Creating a Super Regional Personal Lines Carrier – Acquisition of Narragansett Bay Insurance August 2017
Disclaimer Safe Harbor Statement Statements in this presentation that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, wo rds such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or c omparable terminology are intended to identify forward looking statements. In particular, statements about Heritage Insurance Holdings, Inc.'s (“Heritage”) and NBIC Holdings, Inc.'s ("NBIC") plans, objectives, expectations and intentions; the actual and projected financial condition and results of operations of NBIC; the anticipated timing of closing of Heritage’s proposed acquisition of NBIC; the potential benefits of the proposed acquisition; and the anticipated reinsurance and operating synergies are forward- looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause Heritage’s or NBIC’s actual results to differ from those expressed or implied by such forward -looking statements. Such risks and uncertainties include, among other things, risks related to the satisfaction of the conditions to closing the acquisition (including the failure to obtain necessary regulatory approvals) in the anticipated timeframe or at all; risks that the expected benefits from the proposed acquisition will not be realized or will not be realized within the expected time period; the risk that the businesses will not be integrated successfully; significant transaction costs; the risk of taking on unknown or understated liabilities; and other business risks. Additional risks and uncertainties that could cause Heritage’s actual results to differ from those expressed or implied herein are those risks and uncertainties that are applicable to Heritage’s business in general, which include, without limitation: the success of Heritage’s marketing initiatives; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; Heritage’s ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against Heritage, including the terms of any settlements; risks related to the nature of Heritage’s business; dependence on investment income and the composition of Heritage’s investment portfolio; the adequacy of Her itage’s liability for losses and loss adjustment expense; Heritage’s ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by Heritage in its filings with the Securities and Exchange Commission, including, but not limited to, Heritage’s Annual Report on Form 10 -K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 15, 2017. Heritage undertakes no obligations to update, change or revise any forward looking statement, whether as a result of new information, additional or subsequent developments or otherwise, except as required by law. 2
Transaction Summary Acquisition of NBIC Holdings, Inc. (“NBIC”) by Heritage Transaction Structure NBIC shareholders will receive total consideration of approximately $250 million in cash and Heritage common stock, subject to certain book-value related closing adjustments Transaction Value – ~2.1x estimated Book Value at closing (1) – ~10.3x multiple of estimated 2017 earnings (2) Cash: ~$210 million, funded by – ~$85 million of cash on hand Form of Consideration – ~$125 million issuance of convertible notes issued pre-closing Heritage common stock: ~$40 million Expect to realize meaningful reinsurance and operating synergies from the combination Expected Synergies – ~$22.5 million in run-rate reinsurance synergies and ~$2.5 million in run-rate operating expense synergies expected to be achieved within two years (3) As soon as Q4 2017, subject to customary closing conditions, including regulatory approvals Anticipated Closing (1) The merger agreement provides for a post-closing Book Value related adjustment, subject to specified caps and collars, based on an estimated closing Book Value of $118 million. (2) Based on NBIC's 2017 projected earnings as prepared by NBIC management. There can be no guarantee that such results will be achieved. See "Safe Harbor Statement". (3) There can be no guarantee that such synergies will be achieved in the amounts or at the times anticipated. 3
Expanding Leadership in Coastal Markets Strategic Rationale Diversified Super Regional Carrier • Acquire a market leader in coastal homeowners Approximately 55% of revenue insurance in the Northeast with approximately $300 from FL and million of GWP in NY, NJ, CT, RI, and MA ME 45% from other • Heritage would immediately become a diversified Super states (2) VT Regional Carrier NH MA NY • Accelerates geographic expansion, with a spread of risk WI HI CT throughout the SE, NE, and Hawaii, resulting in RI significant diversification benefits NJ PA IA DE • Combined entity expected to increase GWP by ~50% to MD over $900 million annually (1) IL IN WV • Seasoned franchise with talented management team and VA KY track record of generating underwriting profitability and growth NC TN • Significant reinsurance and operating expense synergies SC expected to be ~$25 million annually following expiration of NBIC’s multi -year agreements in 2019 (3) MS GA MS AL • Meaningful upside to further enhance growth and L earnings potential through new products, partnerships, and bundled offerings FL (1) Estimated based on 2016 Gross Written Premiums. (2) Estimated business mix at transaction closing. 4 (3) There can be no guarantee that such synergies will be achieved in the amounts or at the times anticipated.
Overview of NBIC Personal Residential Market Share in NBIC is a leading specialty underwriter of personal residential and Northeastern States (2) commercial insurance products and services in states along the Eastern seaboard Direct Market Premiums Written Share ‒ Established in 2006 with headquarters in Pawtucket, Rhode Island Rank Insurer ($mm) (%) Provides homeowners coverage in New York, New Jersey, 1 Allstate $1,166 9.7% Massachusetts, Rhode Island and Connecticut, with plans to add additional states 2 Liberty Mutual 1,126 9.4 Products are distributed through a network of independent agents 3 State Farm 1,103 9.2 Currently employs a comprehensive catastrophe reinsurance 4 Chubb 1,099 9.2 program, with a panel of highly-rated reinsurers 5 Travelers 826 6.9 ‒ Largest reinsurers include Swiss Re, Validus Re and Endurance Specialty 6 MAPFRE 424 3.5 Top 15 reinsurers are rated “A” or better by AM Best ‒ 7 USAA 419 3.5 Rated “A” (Exceptional) by Demotech 8 National General 308 2.6 Lines of Business Geographic Mix 9 292 2.4 (1) Other RI CT Amica Mutual 292 2.4 10 6% 7% <1% MA 11 AIG 289 2.4 17% 12 Andover Companies 281 2.4 Personal NY Residential 13 MetLife 281 2.4 NJ 54% 94% 22% 14 Nationw ide 271 2.3 15 American Family 240 2.0 2016 Direct Premiums Written: $307mm Source: SNL. Other lines consist primarily of selected fire & allied, boiler and machinery, and marine lines which supplement core homeowners’ policies. (1) Based on homeowners’ multi -peril 2016 direct premiums written in the following states: New York, New Jersey, Connecticut, Rhode Island and Massachusetts. 5 (2)
NBIC’s Capital Efficient Business Model Innovative reinsurance program minimizes risk retention and capital requirements which has allowed NBIC to generate superior returns Written Premiums Return on Average Equity 24% $307 (1) 23% $278 $240 18% 200 255 11% 170 78 70 51 2014 2015 2016 2014 2015 2016 2017E Net Written Premiums Ceded Written Premiums Net Income: $5 $12 $20 $24 Combined Ratio Underwriting Leverage 92% 4.0x 3.8x 81% 3.3x 34% 63% 20% 9% 60% 59% 55% 1.2x 1.1x 0.5x 2014 2015 2016 2014 2015 2016 NWP / Equity GWP / Equity Loss Ratio Expense Ratio (1) Based on NBIC's 2017 projected earnings as prepared by NBIC management. There can be no guarantee that such results will be achieved. See "Safe Harbor Statement." 6
Recommend
More recommend
