Mergers and Acquisitions Trends in the Global Property and Casualty Insurance Industry

Transcription

1 Mergers and Acquisitions Trends in the Global Property and Casualty Insurance Industry Improving Industry Health to Bolster Global Merger Activity in 2014 NC3B-F1 January 2013

2 Contents Section Slide Number Executive Summary 4 Scope of the Study 7 Introduction to the Global Property and Casualty Insurance Industry 10 Global M&A Trend Analysis in the Property and Casualty Insurance Industry (January 2007 September 2013) Geographic Analysis of M&A Transactions in the Property and Casualty Insurance Industry M&A Outlook for the Global Property and Casualty Insurance Industry 50 Conclusion 56 The Frost & Sullivan Story 59 NC3B-F1 3

3 Executive Summary Mergers and acquisitions (M&A) in the property and casualty (P&C) insurance industry define and shape the future structure of the industry. Merger activity drives revenue growth and industry consolidation and is affected by a variety of factors, including: Profitability trends Improved underwriting performance by P&C companies in 2013; Valuation trends Narrowing the valuation gap; Market cycle Hard market cycle; Reserves and capital adequacy Increased reserves recorded in 2013 compared to the previous year; and Regulatory and governance issues Restructuring of business units by several companies for regulatory compliance. M&A activity in the P&C insurance industry is declining in deal volume but witnessing an increase in average deal value in Improved performance in the industry, renewed investor confidence, improved reserves, and the beginning of the hard market cycle (increase in premiums) complemented by a year (2013) with fewer catastrophic losses than the previous years have improved the prospects of merger activity in this space globally. P&C companies are focusing on greater capital efficiency and cash flow generation by seeking mergers in developing countries with low penetration but high growth potential to strengthen their distribution network. North America continues to be the hub of merger activity in 2013, with a large proportion of domestic mergers and few outbound transactions in Latin America, the Caribbean, and Europe. European P&C companies, on the other hand, are actively restructuring their business units across the globe and have been active in many outbound transactions, especially in the Middle East region. While Africa and the Middle East have huge growth potential in the P&C space, a lack of transparency is hampering M&A activity. Asia-Pacific, Latin America, and the Caribbean feature domestic merger activity where P&C insurers from developed countries seek to strengthen their distribution network in low-penetration countries within the region. NC3B-F1 5

4 Executive Summary (continued) Property and Casualty Insurance Industry: M&A Scorecard, Global, January 2007 September 2013 Active Target Country The United States, United Kingdom, Russia, Ukraine, Canada, China, Germany, Netherlands, France, Australia Active Buyer Country The United States, the United Kingdom, Bermuda, Canada, Germany, France, Russia, Australia, Japan, Spain Most Active Seller Industry Property and casualty insurance, asset management, multiline insurance, insurance brokers and diversified banks Top Deals in 2013 Jabez partners acquired Green non-life insurance co. ltd for $ million. The Travelers Companies announced the purchase of The Dominion of Canada General Insurance company for $ million. Active Buyers Industry Property and casualty insurance, insurance brokers, multiline insurance, asset management, life and health insurance, reinsurance and diversified banks Upcoming Target Country Indonesia, South Korea, Pakistan, Vietnam, Israel, Nigeria, Turkey, Singapore Most Active Companies QBE Insurance Group Ltd., Brown & Brown Inc., China Taiping Insurance Holdings Company Limited, Arthur J Gallagher & Co., AmTrust Financial Services, Inc. NC3B-F1 6

5 Scope of the Study Study Period January 1, 2007 to September 30, 2013 Geographic Scope Global Transactions Analyzed There were 1,078 transactions, with property and casualty insurance companies as targets. Who Will Benefit? Companies operating in the global property and casualty insurance industry Private equity and venture capital investors Fund managers Retail investors Sovereign wealth funds Hedge funds Other members in the investing community Industry Definition This includes all property and casualty insurance providers and does not include units of multiline insurance companies providing property or casualty insurance. Sources Frost & Sullivan in-house research expertise. Established business and financial databases (e.g., Capital IQ) Company annual reports Reports of associations Published news and press releases Note: All analysis is based on disclosed deals only. Analysis of financial data is also based on availability of information. NC3B-F1 8

6 Key Terms Used in the Study Term P&C M&A EBIT EBITDA EBITDAR EV BV P/E Meaning Property and casualty Merger and acquisition Earnings before interest and taxes Earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, amortization, and rent Enterprise value Book value Price to earnings NC3B-F1 9

7 SWOT Analysis Property and Casualty Insurance Drive M&A activity in regions that suffered high catastrophic losses such as North America and Asia-Pacific. Drive M&A activity in regions with high growth potential such as Eastern Europe and countries that provide synergies of distribution. Strengths Hard market cycles lead to increasing premium growth. Improved underwriting performance translates to better margins. Increasing demand for insurance is likely to drive industry growth. Opportunities Cross sell opportunities are barely being tapped. New product offerings/insured risks might help revenue growth. Technology provides improved ways to reach the consumer. Weaknesses Financial weakness means low returns for investors. There is a slow response to technology by insurance companies. There is a high cost of distribution. There is an uncertainty about the impact of changing regulations. Threats Increasing competition from Internet participants. Small companies may run out of business, due to increasing pressure on margins and regulatory changes. Government regulations have a huge impact on insurance companies. Increased competition for targets, such as specialty insurance and niche customer segments, might drive valuation of such insurance companies upwards. Driving consolidation of small companies for survival may result in mergers with data processing companies and other Internet participants. NC3B-F1 11

8 Factors Affecting M&A in the P&C Industry Property and Casualty Insurance Industry: Factors affecting M&A, Global, Certain Probability Perception mismatch on target s value between buyers and sellers Capital adequacy Investor concerns Strengthen distribution network PE consolidation IT infrastructure investment PE exits Inorganic growth opportunities (product or market expansion) Selling non-core business Stricter regulatory environment Historically low valuations Rising premiums, declining profitability Pressure on cash reserves Narrowing bid-ask spreads Period of Impact 1 2 Years 3 5 Years Positive/favors M&A activity Negative/dampens M&A activity Legend As most factors have a positive influence and a average to high probability of occurrence, we expect M&A outlook to be positive in the next to years with sustained or increased activity. Uncertain Weak Level of impact Strong How to interpret: For instance, historically low valuation is a factor that has a high probability and a strong impact in triggering M&A activity. This factor is expected to have a positive impact (suggested by dark blue) in the next 1 to 2 years (suggested by triangle). NC3B-F1 12