Mercer Capital's Value Focus: Insurance Industry | Q3 2014
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Mercer Capital's Value Focus: Insurance Industry | Q3 2014

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Mercer Capital’s Insurance Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to insurance brokers, underwriters, and other industry ...

Mercer Capital’s Insurance Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to insurance brokers, underwriters, and other industry professionals. Each issue includes a segment focus, market overview, mergers and acquisitions review, and more.

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Mercer Capital's Value Focus: Insurance Industry | Q3 2014 Mercer Capital's Value Focus: Insurance Industry | Q3 2014 Presentation Transcript

  • Value Focus © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 1 Insurance Industry Third Quarter 2014 Stocks Move Higher with the Market. After lackluster returns in the first quarter, insurance stocks rebounded in 2Q14, with the SNL Underwriter index posting a 4.6% return and the Broker Index advancing 4.1%, relative to the S&P 500’s 5.2% increase. Life & Health stocks were lifted by news of Toyko-based Dai-ichi Life Insurance’s June 3rd agreement to purchase Protective Life Corp. for roughly 1.3x book value and 14.2x LTM earnings. While most sub-sectors moved in line with the overall market, mortgage & financial guaranty stocks dipped 5.4% amid worries that Puerto Rico’s debt crisis could trigger losses for financial guarantors MBIA and Assured Guaranty. Reinsurance Pricing Pressure. Reinsurance rates remain under pressure from increased competition and ample capacity from existing players and non-traditional sources. These forces led to declines in renewal pricing of 10%–20% in June, according to multiple sources. While detrimental to reinsurers, the aggressive pricing is a boon to primary lines insurers, who have been able to secure additional coverage and better terms for less cost. Renewal pricing in the primary market continues to increase modestly across most lines of coverage, though the rate of increase is slowing. Valuation Multiples Holding Steady. As shown in the attached charts of historical and current pricing by segment, price/book multiples of the SNL Indices were generally flat from the first to second quarter of 2014. On the basis of price-to-tangible book value, the P&C Index was 1.62x at the end of June while the Life & Health Index stood at 1.20x. On the Insurance Broker Index, the EV/EBITDA multiple (11.7x) has trended downward from 11.8x at the end of Q1 and 12.2x at year-end 2013. M&A Deal Notes. While the volume of underwriter transactions continues to slow (just 13 announced deals in Q2, down from 16 in the prior year), several of quarter’s transactions were notable. As mentioned above, Dai-ichi Life Insurance agreed to acquire Protective Life Corp. in early June for approximately $5.6 billion. The $70/share price represents a 20% premium to the prior day’s closing price. Validus Holdings emerged as the leading bidder for Western World Insurance Group, which culminated in a $690 million deal announced on June 23. According to SNL Financial, reports indicated that at least six other players had bid for the U.S. excess and surplus lines carrier. The purchase price represented 1.6x reported book value (or about 1.3x adjusted book after reserve releases and other adjustments). On the insurance broker side, deal volume increased 21% to 51 announced deals in the second quarter (as of this writing), although most the transactions were relatively small, and no deal price exceeded $25 million.
  • © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 2 SNL Insurance Broker and Underwriter IndicesSNL Insurance Underwriter Segment Indices Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014 60.0! 80.0! 100.0! 120.0! 140.0! 160.0! 6/28/13! 7/28/13! 8/28/13! 9/28/13!10/28/13!11/28/13!12/28/13! 1/28/14! 2/28/14! 3/31/14! 4/30/14! 5/31/14! 6/30/14! June28,2013=100! S&P 500: 24.61% ! SNL Insurance Multiline: 26.83% ! SNL Insurance L&H: 27.85% ! SNL Insurance P&C: 14.56% ! SNL Reinsurance: 16.66% ! SNL Managed Care: 30.63% ! SNL Title Insurer: 35.79% ! SNL Mortgage & Finl Guaranty: 14.28% ! 90.0! 95.0! 100.0! 105.0! 110.0! 115.0! 120.0! 125.0! 130.0! 135.0! 6/28/13! 7/28/13! 8/28/13! 9/28/13!10/28/13!11/28/13!12/28/13! 1/28/14! 2/28/14! 3/31/14! 4/30/14! 5/31/14! 6/30/14! June28,2013=100! SNL U.S. Insurance Broker: 27.71% ! SNL U.S. Insurance Underwriter: 21.75% ! S&P 500: 24.61% ! M&A Activity Recap: Insurance UnderwritersM&A Activity Recap: Insurance Brokers Q1! Q2! Q3! Q4! YTD at 6/30! 2011! 24 ! 18 ! 32 ! 31 ! 42 ! 2012! 20 ! 26 ! 27 ! 20 ! 46 ! 2013! 23 ! 16 ! 25 ! 11 ! 39 ! 2014! 17 ! 12 ! 0 ! 0 ! 29 ! 0 ! 20 ! 40 ! 60 ! NumberofTransactions! Q1! Q2! Q3! Q4! YTD at 6/30! 2011! 77 ! 59 ! 72 ! 83 ! 136 ! 2012! 64 ! 71 ! 56 ! 138 ! 135 ! 2013! 41 ! 42 ! 53 ! 76 ! 83 ! 2014! 75 ! 51 ! 0 ! 0 ! 126 ! 0 ! 20 ! 40 ! 60 ! 80 ! 100 ! 120 ! 140 ! 160 ! NumberofTransactions!
  • © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 3 Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014 SNL Life & Health IndexSNL Multi-Line Index SNL Property & Casualty Index SNL Reinsurance Index 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 12.2510.2121.617.685.1810.800.10 Price / Book 1.131.091.140.660.560.710.72 Price / Tang. Book 1.331.262.161.140.760.810.74 0.00 0.50 1.00 1.50 2.00 2.50 0.00 5.00 10.00 15.00 20.00 25.00 Price/Book Price/Earnings 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 17.3914.2416.5514.748.3511.710.14 Price / Book 1.151.201.270.810.811.131.21 Price / Tang. Book 1.201.231.290.710.771.001.31 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 Price/Book Price/Earnings 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 14.6413.4814.8112.8415.9512.700.18 Price / Book 1.321.311.381.121.121.131.09 Price / Tang. Book 1.621.611.651.381.451.401.30 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 Price/Book Price/Earnings 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 9.518.6811.556.9822.939.430.24 Price / Book 1.011.001.060.830.820.841.11 Price / Tang. Book 1.041.031.090.850.850.871.44 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 0.00 5.00 10.00 15.00 20.00 25.00 Price/Book Price/Earnings
  • © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 4 Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014 SNL Title Insurance IndexSNL Managed Care Index SNL Mortgage & Financial Guaranty Index SNL Insurance Broker Index 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 15.1914.8013.929.8910.728.660.11 Price / Book 2.152.102.021.511.641.341.42 Price / Tang. Book 4.504.624.563.363.334.223.43 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Price/Book Price/Earnings 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 23.6917.3414.449.3812.9610.910.28 Price / Book 1.441.441.531.220.890.851.00 Price / Tang. Book 2.002.703.232.631.661.622.01 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 0.00 5.00 10.00 15.00 20.00 25.00 Price/Book Price/Earnings 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 Price / LTM EPS 17.8112.476.240.553.563.340.00 Price / Book 1.851.981.940.660.670.850.89 Price / Tang. Book 1.291.391.980.660.670.860.89 0.00 0.50 1.00 1.50 2.00 2.50 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 Price/Book Price/Earnings 11.711.8 12.2 9.69.3 10.4 8.1 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09 EnterpriseValue/LTMEBITDA
  • Mercer Capital Insurance Industry Services Contact Us Copyright © 2014 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media quotations with source attribution are encouraged. Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry Focus is published quarterly and does not constitute legal or financial consulting advice. It is offered as an information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list to receive this complimentary publication, visit our web site at www.mercercapital.com. Mercer Capital provides the insurance industry with corporate valuation, financial reporting, transaction advisory, and related services. Industry Segments Mercer Capital serves the following industry segments: • Agencies • Independent insurance brokers and agents • Bank-owned agencies • Retail, wholesale, and MGAs • Ancillary • Third-party administrators • Claims adjusters and other service providers Mercer Capital Experience • Nationwide client base • Agency clients range from single office agencies to top-10 public brokers • Underwriter clients range from monoline privates to publicly traded multi-line carriers Contact a Mercer Capital professional to discuss your needs in confidence. Lucas M. Parris, CFA, ASA 901.322.9784 parrisl@mercercapital.com Travis W. Harms, CFA, CPA/ABV 901.322.9760 harmst@mercercapital.com Mercer Capital 5100 Poplar Avenue, Suite 2600 Memphis, Tennessee 38137 901.685.2120 (P) www.mercercapital.com • Underwriters • P&C, life & health, and managed care • Reinsurance • Captives and risk retention groups