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CAS Seminar on Valuation Mergers, Acquisitions, and Actuaries:  Do We Have the Right Stuff?
Presenters <ul><li>Bill Wilt, Moody’s Investors Service </li></ul><ul><ul><li>Report on CAS Project - Actuarial Role in M&...
Goals - Do We Have The Right Stuff? <ul><li>Report on Survey of Industry CFOs </li></ul><ul><ul><li>Better Understand Role...
Overview of VFIC Project <ul><li>Actuarial Role in Acquisitions </li></ul><ul><ul><li>“The goal of the survey is to provid...
History and Status <ul><li>Began Life as CAS RFP in mid-1990s </li></ul><ul><li>Valuation, Finance & Investment Committee ...
Overview of Survey <ul><li>Background on Acquisition </li></ul><ul><ul><li>Motivation for Transaction </li></ul></ul><ul><...
Summary of Responses - Background <ul><li>Motivation  </li></ul><ul><ul><li>Strategic:  New Products, Distribution, Talent...
Summary of Responses - Actuarial Role <ul><li>Quantitative - 3 Most Common </li></ul><ul><ul><li>Reserves and More Reserve...
Summary of Responses - Actuarial Role <ul><li>Qualitative - Surprisingly Infrequent </li></ul><ul><ul><li>Compatibility of...
Summary of Responses - General Feedback <ul><li>Favorable Feedback on: </li></ul><ul><ul><li>Reserve Analyses, Loss Payout...
Drill-Down Points <ul><li>Accounting/Asset Valuation </li></ul><ul><ul><li>Appropriate Level of Knowledge? How Broad Shoul...
Next Steps <ul><li>Conclude Interviews </li></ul><ul><ul><li>Complete Interviews as Summarize Findings </li></ul></ul><ul>...
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  1. 1. CAS Seminar on Valuation Mergers, Acquisitions, and Actuaries: Do We Have the Right Stuff?
  2. 2. Presenters <ul><li>Bill Wilt, Moody’s Investors Service </li></ul><ul><ul><li>Report on CAS Project - Actuarial Role in M&A </li></ul></ul><ul><li>Paul Brehm, St. Paul Fire & Marine </li></ul><ul><ul><li>Actuarial Perspective on M&A Work </li></ul></ul><ul><li>Bill Egan, Merrill Lynch </li></ul><ul><ul><li>Financial Perspective on M&A and Actuarial Role </li></ul></ul>
  3. 3. Goals - Do We Have The Right Stuff? <ul><li>Report on Survey of Industry CFOs </li></ul><ul><ul><li>Better Understand Role Being Played </li></ul></ul><ul><ul><li>Areas of Improvement - Constructive Criticism </li></ul></ul><ul><li>Different Perspectives of Actuarial Role </li></ul><ul><ul><li>Inside Profession </li></ul></ul><ul><ul><li>Outside Profession </li></ul></ul>
  4. 4. Overview of VFIC Project <ul><li>Actuarial Role in Acquisitions </li></ul><ul><ul><li>“The goal of the survey is to provide feedback to the actuarial community as it strives to create tools and capabilities that will lend further insights into the financial operations of insurance companies.” </li></ul></ul><ul><ul><li>Opportunity to Provide Guidance to Actuarial Community </li></ul></ul>
  5. 5. History and Status <ul><li>Began Life as CAS RFP in mid-1990s </li></ul><ul><li>Valuation, Finance & Investment Committee - 1998 </li></ul><ul><li>Survey of Financial Managers (CFOs) Involved in Recent M&A </li></ul><ul><li>To Date -- 10 Interviews </li></ul><ul><li>Product - Report to CAS </li></ul>
  6. 6. Overview of Survey <ul><li>Background on Acquisition </li></ul><ul><ul><li>Motivation for Transaction </li></ul></ul><ul><ul><li>Quantitative Models </li></ul></ul><ul><ul><li>Qualitative Considerations </li></ul></ul><ul><li>Actuarial Involvement </li></ul><ul><ul><li>Description of Role (Quant and Qual) </li></ul></ul><ul><ul><li>General Feedback -- Areas of Improvement, Business Skills </li></ul></ul>
  7. 7. Summary of Responses - Background <ul><li>Motivation </li></ul><ul><ul><li>Strategic: New Products, Distribution, Talent </li></ul></ul><ul><ul><li>Financial: Price is Secondary, Though Paramount </li></ul></ul><ul><li>“ Strategic intent opens the deal, financial reasons close the deal .” </li></ul><ul><li>Models: DCF, Comparable Transactions, Market Multiples </li></ul><ul><li>Qualitative: Aligned with Strategic Motives </li></ul>
  8. 8. Summary of Responses - Actuarial Role <ul><li>Quantitative - 3 Most Common </li></ul><ul><ul><li>Reserves and More Reserves </li></ul></ul><ul><ul><li>‘Run-Rate’ Loss Ratios For Use in DCF </li></ul></ul><ul><ul><li>Evaluation of Reinsurance Programs </li></ul></ul><ul><ul><li>Other Areas Cited Less Frequently: </li></ul></ul><ul><ul><ul><li>DCF Model </li></ul></ul></ul><ul><ul><ul><li>Capital Allocation </li></ul></ul></ul><ul><ul><ul><li>Catastrophe or EIL Models </li></ul></ul></ul>
  9. 9. Summary of Responses - Actuarial Role <ul><li>Qualitative - Surprisingly Infrequent </li></ul><ul><ul><li>Compatibility of Operations </li></ul></ul><ul><ul><li>Adequacy of Target’s Claims or Financial Reporting Systems </li></ul></ul><ul><ul><li>Negotiations </li></ul></ul><ul><li>Limited Role in (Almost) All Cases </li></ul>
  10. 10. Summary of Responses - General Feedback <ul><li>Favorable Feedback on: </li></ul><ul><ul><li>Reserve Analyses, Loss Payouts </li></ul></ul><ul><ul><li>Technical and Modeling Skills in General </li></ul></ul><ul><li>Areas to Improve </li></ul><ul><ul><li>Too Numbers Driven, Too Theoretical </li></ul></ul><ul><ul><li>Need to Broaden Perspective </li></ul></ul><ul><ul><li>Conflicting Views on Precision </li></ul></ul><ul><ul><li>Accounting and Asset Valuation </li></ul></ul>
  11. 11. Drill-Down Points <ul><li>Accounting/Asset Valuation </li></ul><ul><ul><li>Appropriate Level of Knowledge? How Broad Should Skill Set Be? </li></ul></ul><ul><li>Precision -- Ranges Vs Point Estimates </li></ul><ul><ul><li>Understand What User Wants </li></ul></ul><ul><li>Broader Perspective </li></ul><ul><ul><li>Common Critique, But Actuaries Provide Balance </li></ul></ul><ul><li>Data and Systems -- Overlooked? </li></ul>
  12. 12. Next Steps <ul><li>Conclude Interviews </li></ul><ul><ul><li>Complete Interviews as Summarize Findings </li></ul></ul><ul><li>Prepare a Report for CAS </li></ul><ul><ul><li>Expect to Support Many Initiatives Currently Underway (Committees on Nontraditional Practice Areas, Seminars) </li></ul></ul><ul><ul><li>Include Educational Recommendations </li></ul></ul><ul><ul><li>Provide Benchmark for Future Surveys </li></ul></ul>
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