New Co Growth Plan (June 2009)


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Auto Insurance Acquisition

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New Co Growth Plan (June 2009)

  1. 1. NewCO Partners Auto Insurance Opportunity Private Passenger Auto Growth Plan June 2009
  2. 2. Confidential Document <ul><li>This communication is confidential and contains proprietary information, including trade secrets belonging to NewCO Partners and its related entities. Neither this document nor any information contained in the document may be reproduced or disclosed to any person, except as expressly authorized in writing by NewCO Partners </li></ul><ul><li>This communication is for discussion purposes only and does not constitute an offer to sell or to purchase securities, nor a solicitation of an offer to sell or to purchase securities. Any sale or purchase of securities shall be transacted through a registered broker-dealer. </li></ul><ul><li>This Memorandum contains certain forward-looking statements, including among others (i) anticipated trends in the Company’s financial condition and results of operations and (ii) the Company’s business strategy. These forward-looking statements are based largely on the Company’s current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. </li></ul><ul><li>NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE COMPANY OR GALLAGHER RE AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION OR ANY OTHER WRITTEN OR ORAL COMMUNICATION TRANSMITTED OR MADE AVAILABLE TO A PROSPECTIVE PURCHASER OF EQUITY SECURITIES OF THE COMPANY. NOTHING CONTAINED IN THE MEMORANDUM IS OR SHALL BE RELIED UPON AS A PROMISE OR REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE PERFORMANCE OF THE COMPANY. ANY ESTIMATES OR PROJECTIONS CONTAINED HEREIN HAVE BEEN PREPARED BY, AND ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO THE COMPANY AND INVOLVE SIGNIFICANT SUBJECTIVE JUDGMENTS AND ANALYSIS AND, ACCORDINGLY, NO REPRESENTATION OR ASSURANCE IS MADE AS TO THEIR ATTAINABILITY. </li></ul><ul><li>ONLY THOSE REPRESENTATIONS AND WARRANTIES MADE IN A DEFINITIVE, WRITTEN PURCHASE AGREEMENT AND SUBJECT TO SUCH LIMITATIONS AND RESTRICTIONS AS MAY BE SPECIFIED THEREIN, SHALL HAVE ANY LEGAL OR BINDING EFFECT. </li></ul>
  3. 3. Key Elements of Growth Strategy <ul><li>Acquire an existing, well branded insurance carrier. </li></ul><ul><ul><li>Capital in excess of $47 million that wrote $135M in Gross Written Premium in 2008 </li></ul></ul><ul><ul><li>Fully licensed vehicle in all major states (e.g., California, New York, Texas, etc.). </li></ul></ul><ul><ul><li>First year premium target for new entity of $187 million. </li></ul></ul><ul><li>Expand the non-standard product offering to include new states, the standard tier, and assigned risk pools. </li></ul><ul><ul><li>New states and new tier increase NewCO’s premium target to $187 million in the first year, for a consolidated premium target of $187 million for the first full year of operations. </li></ul></ul><ul><li>Capture growth markets in California; New York; Texas; and Florida. </li></ul><ul><li>Make minority investments with key producers identified in the plan. </li></ul><ul><li>Generation of Policy Fees of 4.5% to 5% of Gross Written Premium (GWP); and Monthly Billing Fees that add approximately 2.5% to 3% of GWP and Miscellaneous Fees of another 1% of GWP </li></ul>
  4. 4. Financial Highlights <ul><li>Premium increases significantly under the aggressive growth strategy, with projected premiums starting at $187 million in year 1 and growing to $775 million in year 6. </li></ul><ul><li>Average five-year returns are projected to be 26.5%, although these returns may be further improved by using debt or other alternative capital sources. </li></ul><ul><li>Annual net income expected to grow to $180 million in year 6. </li></ul><ul><li>Book equity increases to approximately $180 million in year 6, representing a 3.6x increase over the initial investment. </li></ul><ul><li>Fee income is expected to increase significantly under the new plan to over $40.86M in year 6*. This Fee Income has been omitted in the Pro Forma Highlights. </li></ul>
  5. 5. Why does the NewCo Plan make sense? <ul><li>Management has already identified an acquisition target that should be priced close to book value or at a book-value multiple of 1.1 to 1.2x. </li></ul><ul><li>Acquisition provides immediate platform to launch, including a California, Florida & Texas, license and a robust back-office. </li></ul><ul><li>Ability access West Coast premium immediately upon rate approval. </li></ul><ul><li>Enhanced opportunity to earn fee income. </li></ul><ul><li>Acquisition minimizes start-up risk, particularly in areas of staffing and licensure. </li></ul><ul><li>The portfolio becomes more capital efficient and stable by adding more lines and more states. </li></ul>
  6. 6. Increased Risk Factors <ul><li>Although the growth strategy is projected to increase returns and reduce certain start-up risks, it is also expected to increase certain risks, particularly with respect to the acquisition of an existing entity. </li></ul><ul><li>Such increased risks include: </li></ul><ul><ul><li>Negotiating and closing the purchase agreement </li></ul></ul><ul><ul><li>Securing necessary regulatory approvals for purchase </li></ul></ul><ul><ul><li>Integration risks associated with organizational alignment and staff relocations </li></ul></ul><ul><ul><li>Managing contingent and tail liabilities in the purchased entity </li></ul></ul>
  7. 7. Capital Strategy <ul><li>Under the growth strategy, NewCo would seek to acquire an existing carrier for approximately $50 million to support its growth strategy. </li></ul><ul><li>Additionally, with the existing carrier in place a Capital infusion of $25M in Year 2 will be required to reduce Re-Insurance fees from Yrs 2 through Yr 6. </li></ul>
  8. 8. Financial Highlights
  9. 9. Pro-Forma Income Statement