We believe consolidation within the TPA marketplace will remain relatively slow since

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1 2013 Claims Services M&A Review and 2014 Outlook Review of 2013 Claims Services Review and Outlook (February 2013 View From the Ridge) We believe consolidation within the TPA marketplace will remain relatively slow since most of the major transactions have already occurred and that M&A activity will primarily involve niche or regional players and potentially international expansion. As we predicted last year, consolidation and M&A activity within the TPA sector remained very slow through 2013 and early 2014 with no significant examples of TPAs acquiring other competitors. The most notable transaction in the sector was KKR s $2.4 billion acquisition of Sedgwick Claims Management Services announced on January 27, This is the third transaction in approximately eight years for Sedgwick, all of which involved private equity firms. The owners of Sedgwick have done well in each transaction with the transaction size essentially doubling in each transaction, from a $635 million transaction that closed on January 31, 2006, to a $1.1 billion transaction that closed May 28, 2010, to the most recent $2.4 billion transaction. This transaction represents less the trend of consolidation within the TPA sector, but more the trend of private equity firms acquiring market leaders that have been able to demonstrate strong growth and margins. The debt financing markets remain very strong in general, particularly for companies with $50 million plus of EBITDA, which is also driving much of the private equity interest and higher valuation multiples in the sector. The EBITDA multiple achieved in this transaction, reported to be in excess of 11.5x, was described as a new high point for the industry. We expect the larger TPAs to continue to focus on providing a wider breadth of services and expanding their presence in the medical management services sector, both organically and through selective acquisitions. This trend did play out to a certain extent in 2013 and early 2014, although medical management acquisitions by TPAs have remained relatively slow, due to private equity buyers and other medical management companies being more aggressive for those targets. Sedgwick, the market leading TPA, continues to offer the broadest suite of services, including on the medical management front where they appear to be continuing to grow and expand these services. York has also broadened their medical management capabilities in recent years, particularly with the acquisition of Avizent. Its most recent acquisition of CareWorks continued this trend, which was announced on January 31, CareWorks is the largest managed care organization and TPA in Ohio and also provides absence management and disability services. The majority of M&A transactions involving medical management companies were acquisitions by other medical management companies or private equity firms. Several of the same factors that led to an attractive valuation for Sedgwick led to high April 2014 Copyright 2014 StoneRidge Advisors, LLC

2 valuation multiples for companies such as One Call Care Management, which set a new high point for the medical management services sector with its sale to Apax Partners on October 25, We also think that TPAs will increase their focus on growth within the disability market. This trend did not play out to a significant extent in 2013 and early The longer term impact of the sale of Reed Group to Guardian remains to be seen. There is a very limited number of disability-focused TPAs with significant scale. We do believe that several of the larger TPAs continue to see the disability and absence management market as a potential growth area. Although it was not the primary focus of York s acquisition of CareWorks, CareWorks does provide York with additional capabilities in absence/ disability management, including Family Medical Leave Act ( FMLA ) administration TPA Outlook Similar to 2013, we believe consolidation within the TPA marketplace will remain relatively slow for the remainder of 2014 and that the majority of M&A activity will primarily involve niche or regional players. We expect the larger TPA companies to continue to focus on providing a wider breadth of services, both organically and through selective acquisitions. We also believe that some of the larger TPAs could look to expand their international business through acquisitions, as some of the international markets offer the potential for stronger organic revenue growth going forward than the U.S. market. Revenue growth in the U.S. market should continue to improve going forward, as the unemployment rate continues to decline and the manufacturing and construction sectors have stabilized. Offsetting the potential for increasing claims frequency driven by higher employment levels is the increased focus of employers on loss prevention and risk management, however. We think TPAs will increase their focus on growth within both the disability and absence management market. We believe that TPAs who have focused on providing return to work services for the workers compensation sector will also expand their service offerings into disability and other absence management services. Employer productivity and managing employee absences is becoming an increasingly important issue in the workplace today driven by very complex legislation and regulations. While employers historically were more focused on simply outsourcing workers compensation administration and potentially disability administration, they are increasingly looking for solutions for FMLA, American Disability Act and casual absence management. We think that TPAs who can address a broader array of services to fulfill employer needs will have a competitive advantage. Review of 2013 Loss Adjusting Outlook We expect that consolidation will increase in 2013 compared to a slower year in We think the lack of M&A activity in 2012 will lead to increased activity in 2013, particularly, if it is a more normal weather year. We would expect that all of the national players backed by private equity firms will be looking to grow through acquisitions in As predicted, M&A activity did increase in 2013 and early 2014, primarily driven by the national players backed by private equity firms. Engle Martin and VeriClaim have been the two most active firms with two acquisitions each in the last year. Engle Martin announced their first M&A transaction since Forsyth Capital s investment in April 2011 with its acquisition of PT&C s Forensic Consulting Services in November The PT&C business expands Engle Martin s suite of services by providing the company with a cause and origin investigations and engineering business, similar to what VeriClaim has 2

3 with its Unified Fire & Investigations subsidiary and what Cunningham Lindsay has with its EFI Global subsidiary. Engle Martin also announced the acquisition of a liabilityfocused loss adjusting firm, Totura & Company, in March VeriClaim, backed by Flexpoint Ford, announced the acquisitions of two loss adjusting firms, Property Claims Services, Inc. and McMartin Wasek and Associates, Inc. in August and September 2013, respectively. PCS provides VeriClaim with a solid commercial presence in the state of Texas, while McMartin Wasek expands its commercial presence in Michigan. York Risk Services Group, backed by private equity firm ABRY Partners, also recently announced recently its acquisition of American Claims Services, which expands its presence in the energy sector and London market. Claims Administrative Services, an SE Capital-backed loss adjusting firm, completed its first add-on acquisition, striking a deal to buy Simsol Insurance Services, Inc. We believe that Cunningham Lindsey and McLarens continue to be interested in acquisitions in the U.S. loss adjusting market, but neither firm completed a transaction in the U.S. market last year. NCA Group, which significantly expanded their daily and commercial loss adjusting capabilities through three acquisitions in early 2011, recently completed two tuck-in acquisitions to expand their presence in the Midwest and Northeast. The most significant new player in the loss adjusting M&A arena was Brown & Brown through their acquisition of ICA, Inc., announced in January Brown & Brown had previously acquired Colonial Claims, a loss adjusting business focused on the flood market, in late Brown & Brown has historically been a very acquisitive firm in the retail agency and MGA market, and it will be interesting to see if they become a more active acquiror in the loss adjusting sector. We expect that the remote roof measurement market will continue to grow rapidly and further penetrate the insurance claims market. The recent announcement of the merger of equals between Pictometry and Eagleview creates a dominant market player that is likely going to impact the overall market. As expected, the use of roof measurement tools and technology by loss adjusters, especially those focused on residential property claims, have continued to become more commonplace. Using aerial photography and one or two measurements taken from the ground, an adjuster evaluating a roof loss can save the time and trouble of having to climb a ladder to walk on an insured s roof and take measurements. While some old guard adjusters will maintain that it can be easy to make mistakes using the tools, the technology is rapidly improving and is here to stay. Case in point, Verisk Analytics, the provider of repair and reconstruction estimating software Xactimate, acquired Eagleview Technologies for $637 million, or approximately 17.0x EBITDA, in January The expectation is that Verisk will fold Eagleview s aerial roof measurement tool into its Xactimate software, which is used by 15 of the 20 largest property insurers Loss Adjusting Outlook We expect that consolidation will continue at a steady pace and potentially slightly increase in 2014 compared to We think that the larger national players will continue to look to enhance growth through acquisition and regional and local players will continue to seek liquidity and realize the benefits of being part of a larger organization. We also expect that more transactions involving loss adjusting companies that primarily utilize independent contractors to handle both daily claims as well as catastrophes, similar to the ICA model, will occur. We believe that this model is the most cost effective 3

4 way to handle residential property claims, and it is gaining a better appreciation in the marketplace. Totura & Company s Sale to Engle Martin Totura & Company announced its sale to Engle Martin & Associates, Inc. on March 20, The acquisition of Totura & Company significantly enhances Engle Martin s casualty adjusting capabilities and expands its presence in Florida and the Southeast. The transaction provided Totura & Company with additional access to national markets as well as broader product capabilities for its existing clients. StoneRidge Advisors acted as exclusive financial advisor to Totura & Company for this transaction. and KD Consulting & Appraisal Group, LLC have been sold to advisor to Alamo and KDC December 2012 Alamo Claim Services Sale to CIS Group Alamo Claims Services completed its sale to CIS Group in December The acquisition of Alamo provides CIS Group with additional claims services capabilities to complement their market leading underwriting services capabilities. The transaction provides Alamo with additional resources and broader product capabilities. StoneRidge Advisors acted as exclusive financial advisor to Alamo Claim Services for this transaction. StoneRidge Advisors Claims Services Expertise StoneRidge Advisors has been the only investment banking firm with a consistent focus on the claims services sector. StoneRidge Advisors continues to actively work with several leading players and has completed four recent claims services transactions. has acquired TURCO Claim Services, Inc. advisor to NCA Group, Inc. August 2013 has acquired Woodland Claim Service, Inc. advisor to NCA Group, Inc. January 2014 has been acquired by advisor to Totura & Company March

5 StoneRidge Advisors Additional Recent Transactions Contacts Hendricks Holding Company, Inc. has sold to was sold to Jay Poorman Rocky Golem Atlas Financial Holdings, Inc. advisor to Hendricks Holding Company, Inc. January 2013 advisor to Hartville Group, Inc. May 2013 Peter North Patrick O Hara pohara@stoneridgeadvisors.com 120 South LaSalle Street Suite 1300 Chicago, IL About StoneRidge Advisors StoneRidge Advisors is an investment banking firm that specializes in the insurance industry. Our clients include property & casualty and life & health insurance companies, reinsurance companies, insurance brokerage, managing general agency, claims management and other related insurance service and technology companies. Our firm combines extensive experience and best practices to help our clients achieve their strategic goals and financial objectives. Services StoneRidge Advisors provides services related to all aspects of an M&A transaction, including identification, valuation, negotiation, structuring, and financing. In addition, we assist companies in developing and executing upon capital raising initiatives. Mergers & Acquisitions Buy-Side Advisory Sell-Side Advisory Doug Tegen dtegen@stoneridgeadvisors.com David Gaebler dgaebler@stoneridgeadvisors.com Jeffrey Cohen jchohen@stoneridgeadvisors.com 1120 Avenue of the Americas Suite 4003 New York, NY Capital Raising Consulting Services Financial Advisory Business Valuations Fairness Opinions Consulting Services 5