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Mercer Capital's Value Focus: Insurance Industry | Q1 2016

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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 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 | Q1 2016

  1. 1. VALUE FOCUS Insurance Industry www.mercercapital.com Sector Overview & Commentary Property Casualty 1 Reinsurance 2 Life Health 2 Managed Care 3 Brokers 3 InsurTech, Claims Services 4 Insurance MA Highlights Insurance Underwriters 5 Insurance Brokers 6 Publicly Traded Insurance Companies Reinsurance 10 Multiline 10 Life Health 11 Managed Care 12 Brokers 13 InsurTech, Claims Services 13 About Mercer Capital 14 First Quarter 2016
  2. 2. © 2016 Mercer Capital // www.mercercapital.com 1 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Sector Overview Commentary Property Casualty • PC stocks gained 2.1% for the quarter and have risen 7.8% over the last twelve months, with all segments posting positive, albeit moderate, returns. For reference, the SP 500 returned just 0.8% for the quarter, and -0.3% Y/Y. • Per MarketScout, aggregate commercial lines renewal pricing continued to drop significantly in Q1, falling 4% in January and February and 3% in March after dropping an average of 3% in Q42015. For personal lines, rates renewal pricing also fell, dropping 1% in the first two months of the year but remaining flat in March. • The soft market is poised to continue throughout 2016, according to Marsh, reflecting ample insurer capacity, competition and relatively low catastrophe losses. In its outlook, Marsh expects demand for cyber insurance to continue to grow in 2016, along with demand withintheworkers’compensationsegment,whileitviewsautomobile liability as one of the most challenging among casualty areas. • Amidst the backdrop of a soft pricing environment, the next three years may see increased competition for the acquisition of attractive assets, according to a survey conducted by Willis Towers Watson MA Risk Consulting. • In a March 15th report, Fitch Ratings highlighted the 7.2% decline in U.S. insurers’ operating earnings in 2015, citing the competitive operating environment and low investment yields as primary contributing factors. Underwriting profitability also fell moderately from a combined ratio of 93.4% in 2014 to 94.5% in 2015. Sector Pricing and Valuation Summary Share Price Δ Price / Earnings Price / Book LTM Return on EquitySegment %YoY %1Q16 LTM FY16E FY17E P/B P/TB Property Casualty (all) 7.8% 2.1% 15.3x 14.3x 13.5x 1.34x 1.42x 9.2% PC - Commercial Lines 8.5% 2.0% 12.8x 12.4x 11.9x 1.25x 1.29x 9.8% PC - Personal Lines -5.3% 1.2% 14.7x 12.6x 11.2x 1.41x 1.49x 10.6% PC - Specialty 12.2% 2.3% 17.4x 16.3x 16.0x 1.18x 1.28x 7.6% PC - Workers' Comp 10.2% 3.2% 14.2x 14.7x 14.4x 1.88x 2.21x 15.6% Reinsurance 2.3% 0.4% 9.5x 10.8x 9.9x 1.02x 1.12x 10.1% Multi-line 10.2% -4.2% 12.8x 12.1x 10.6x 1.05x 1.08x 5.4% Life Health -8.8% -5.9% 10.4x 9.6x 9.0x 0.85x 0.87x 9.6% Managed Care 2.1% 3.2% 21.4x 16.6x 14.0x 2.40x 3.94x 11.7% Source: SP Global Market Intelligence, Mercer Capital analysis. Median measures shown for segments. Share Price Δ Enterprise Value / EBITDA EV / LTM Rev LTM Rev GrowthSegment %YoY %1Q16 LTM FY16E FY17E Insurance Brokers 8.1% 9.6% 13.4x 10.3x 9.5x 2.80x 2.0% Claims, Tech, Services -9.4% -6.4% 18.8x 4.7x 4.3x 1.59x 13.3% Source: SP Global Market Intelligence, Mercer Capital analysis. Median measures shown for segments.
  3. 3. © 2016 Mercer Capital // www.mercercapital.com 2 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Sector Overview Commentary Reinsurance • Reinsurance stocks treaded water in Q1, with the median return for the sector just 0.4%. The sector has experienced similarly lukewarm results over the last twelve months, increasing only 2.3%. • According to the latest Aon Benfield Aggregate report, total global reinsurer capital fell 2% to $565 billion at Dec. 31, 2015 from 2014. Due to the strengthening U.S. dollar and impact of rising interest rates on bond valuations, traditional rein- surance capital dropped 4% to $493 billion, though this still comprises 87% of the total. Alternative capital grew to $72 billion, a 12% increase. • In Q1, the catastrophe bond and insurance-linked securities market experienced an infusion of approximately $2.2 billion of new risk capital from 10 transactions, per Artemis’ first-quarter cat bond and ILS market report. • Fitch has maintained a negative outlook on the reinsurance sector in the face of intense market competition and sluggish cedent demand. The ratings agency warns that a price floor has not yet been reached and that a further drop in pricing combined with declining investment returns could pose a continued challenge for reinsurers throughout 2016. Life Health • Life and health stocks continued their negative trend, decreasing 5.9% on the quarter, pushing the sector’s overall median return down to -8.8% over the past year. • Median price/book for the LH sector fell in Q1, from 0.92x the prior two quarters to 0.85x, a change that could make companies in the sector even more attractive acquisition targets. • MetLife, recently won its case against the Financial Stability Oversight Council to shed its tag as a nonbank systemically important financial institution (SIFI), freeing it from the potential for additional federal oversight. Shares of MetLife rose 5.23% in just two hours in the wake of the news. Fellow nonbank SIFIs Prudential Finan- cial and American International Group’s actions will be monitored closely moving forward. • U.S. life insurance premiums grew at their fastest pace in four years in 2015, 4.48%. For context, direct premium written grew at an average nominal growth rate of less than 2% from 2004 to 2014, according to a McKinsey Co. report. However, in the same report, the consulting firm warned that the industry actually contracted in real terms over this period, with defined contribution plans offered by asset managers eating into life insurers’ market share.
  4. 4. © 2016 Mercer Capital // www.mercercapital.com 3 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Sector Overview Commentary Managed Care • Managed care stocks rose 3.2% on the quarter, an increase reflective of their modest returns over the last twelve months, 2.1%. • In the last week of the quarter, most health insurers struggled with the Aetna/ Humana and Anthem/Cigna deals still on hold. Centene bucked this trend as state regulators approved its merger with Health Net on March 24th, pushing Cen- tene’s stock up 8.9%. • The median price/earnings ratio of the managed care sector rose to 21.4x in the first quarter of 2016, trending upwards from 18.7x in Q42015 and 18.5x in Q32015. • According to research conducted by Mizuho Securities analysts, health care stocks have historically performed better than the broader market in periods preceding and following federal elections, provided there is a balance of power between the White House and at least one chamber of Congress, as is the case heading into the 2016 election. • As the U.S. presidential race intensifies, the future structure of the country’s health care system hangs in the balance. Republican nominees Ted Cruz, Donald Trump and John Kasich promise to repeal the ACA, while Democratic frontrunner Hillary hopes to expand it. Dark horse candidate Bernie Sanders instead promotes a fed- erally administered single-payer system. Regardless of the election’s outcome, proposals promising significant changes in costs and coverage are of great impor- tance to health insurance participants. Brokers • Broker stocks’ enjoyed a positive quarter gaining 9.6%. The sector’s Y/Y returns remain robust as well, at 8.1%. • According to a market survey conducted by The Council of Insurance Agents Brokers, commercial PC rates continued to decrease in the first quarter, sustaining the trend that began in Q12015. Rates declined by 3.7% on average, compared with an average 2.8% decrease in the fourth quarter of 2015. Large accounts once again suffered the biggest decline at 4.6%, followed by medium- size accounts at 4.4% and small accounts at 2.1%. Commercial auto, DO liability and employment practices liability were the only lines to experience climbing rates. • The robust MA environment in the sector has persisted into 2016, though activity is down slightly from the record-setting pace of 2015 when the full-year total of 472 deals blew away the previous high-water mark of 359 set in 2012. Private equity firms are engaging in an increasingly large portion of the transactions with seven PE-backed brokers accounting for 37% of the deals YTD and publicly traded bro- kers BRO, MMC, and AJG combining for only 9%. • After fluctuating between 12.0x and 12.8x since 2013, EV/EBITDA multiples in the broker sector jumped to 13.4x in the first quarter of 2016.
  5. 5. © 2016 Mercer Capital // www.mercercapital.com 4 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Sector Overview Commentary InsurTech, Claims Services • TPAs, insurance software/technology firms and other ancillary service providers experienced mixed results to start 2016, with the median return for the sector -6.4%. Returns ranged from positive 24.4% (Ebix) to negative 29.1% (Connecture). Y/Y, the sector returned -9.4%, though again, individual results were extremely varied. • Ebix’s (EBIX) gain was likely a function of its surprising Q42015 earnings report in which the reported $0.65 EPS well outperformed consensus expectations of $0.46 per share. In two days alone following the report’s release, the stock gained 20.3%. Ebix is a supplier of on-demand software solutions and E-commerce ser- vices to the insurance industry. • Crawford Company (CRD.B) enjoyed a similarly successful quarter, gaining 22.0% after announcing strong forward guidance for FY 2016, including a plan to rearrange its internal management to feature a shared services leadership struc- ture. The company provides claims management solutions for the risk manage- ment and insurance industries, as well as self-insured entities worldwide.
  6. 6. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 5 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Insurance MA Highlights Insurance Underwriters 18 deals were announced in 1Q16, down from 23 in 4Q15. Year-to- date, underwriter transaction activity is up 50%, from just 12 deals in 1Q15. Key deals of 1Q16 include: • National General Holdings Corp. purchasing Century- National Insurance Company, a California-based PC underwriter, for a price of approximately $315 million. ○○ The estimated purchase price at announcement equates to 1.46x statutory book value and 20.1x statutory LTM earnings, with $140 million to be paid upfront in cash and the balance to be deferred over two years. • The Hartford Financial Services Group, Inc. acquiring Northern Homelands Company, the holding company of Maxum Specialty Insurance Group, for $170 million in cash. ○○ Maxum, an excess and surplus lines insurer, will main- tain its brand and wholesale distribution model and will be managed as a separate unit under the agreement. The implied statutory multiples at announcement are 1.48x book value and 21.4x LTM earnings. Q1! Q2! Q3! Q4! YTD at 3/31! 2013! 24 ! 19 ! 25 ! 15 ! 24 ! 2014! 17 ! 15 ! 11 ! 29 ! 17 ! 2015! 12 ! 20 ! 26 ! 23 ! 12 ! 2016! 18 ! 0 ! 0 ! 0 ! 18 ! 0 ! 20 ! 40 ! NumberofTransactions! MA Activity Recap: Insurance Underwriters
  7. 7. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 6 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Insurance MA Highlights Insurance Brokers 112 broker transactions were recorded in 1Q16, up from 107 in 4Q15. Year-to-date, deal activity is down 7% from 121 in 1Q15. The largest deals announced in 1Q16 include: • BBT Corp. has agreed to acquire CGSC North America Holdings Corp. for $500 million in cash. ○○ CGSC North America consists of the wholesale broker Swett Crawford, specialty managing general agencies including J.H. Blades Co and Creechurch International Underwriters, and a U.S. reinsurance broker. The transaction is expected to add more than $200 million in annual revenue, or an additional 15%, to BBT’s Insurance segment. • Aspen Insurance Holdings Limited announced its acquisition of AgriLogic Insurance Services, LLC, diversifying its portfolio of specialty insurance businesses. ○○ The announced deal value is $76 million in cash. Head- quartered in Kansas, AgriLogic is a specialist U.S. crop business with an integrated agricultural consultancy and estimated gross written premiums of $185 million in 2015. MA Activity Recap: Insurance Brokers Q1! Q2! Q3! Q4! YTD at 3/31! 2013! 45 ! 42 ! 57 ! 79 ! 45 ! 2014! 81 ! 66 ! 93 ! 91 ! 81 ! 2015! 121 ! 122 ! 109 ! 107 ! 121 ! 2016! 112 ! 0 ! 0 ! 0 ! 112 ! 0 ! 20 ! 40 ! 60 ! 80 ! 100 ! 120 ! 140 ! NumberofTransactions!
  8. 8. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 7 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Property Casualty 3/31/15 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div. Yield Underwriting Ratios Invest Yield LTM ROETicker Name LTM FY16E FY17E P/B P/TB Loss Expense Comb. Commercial Lines AIG American International Group, Inc. 54.05 64,531 -1.4% -12.8% 32.8x 11.2x 9.3x 0.72x 0.73x 1.81% 77.5% 34.9% 112.4% 4.21% 2.2% CB Chubb Limited 119.15 38,672 6.9% 2.0% 13.8x 12.1x 11.4x 1.33x 1.65x 2.28% 58.1% 29.2% 87.3% 3.02% 9.7% TRV Travelers Companies, Inc. 116.71 34,534 7.9% 3.4% 10.7x 12.0x 11.8x 1.46x 1.75x 2.16% 56.6% 31.7% 88.3% 3.30% 14.1% CINF Cincinnati Financial Corporation 65.36 10,715 22.7% 10.5% 17.1x 22.4x 22.2x 1.67x 1.67x 3.11% 60.2% 30.9% 91.1% 4.28% 9.8% CNA CNA Financial Corporation 32.18 8,697 -22.3% -8.4% 18.2x 10.6x 9.8x 0.74x 0.75x 2.84% 61.0% 34.4% 95.4% 3.88% 3.9% AFG American Financial Group, Inc. 70.37 6,156 9.7% -2.4% 17.9x 12.4x 12.0x 1.34x 1.42x 1.55% 63.8% 30.9% 94.7% 4.28% 7.3% ORI Old Republic International Corporation 18.28 4,789 22.4% -1.9% 12.4x 14.6x 13.8x 1.23x 1.29x 3.97% 47.5% 48.5% 96.0% 4.24% 10.7% THG Hanover Insurance Group, Inc. 90.22 3,879 24.3% 10.9% 12.2x 14.2x 13.4x 1.36x 1.46x 2.26% 61.3% 34.4% 95.7% 3.54% 11.5% SIGI Selective Insurance Group, Inc. 36.61 2,100 26.0% 9.0% 12.8x 14.0x 14.3x 1.50x 1.51x 1.79% 57.7% 34.8% 92.5% 2.71% 12.5% UFCS United Fire Group, Inc. 43.82 1,102 37.9% 14.4% 12.4x 16.7x 18.6x 1.25x 1.29x 2.30% 61.0% 31.0% 92.0% 3.20% 10.6% EIG Employers Holdings, Inc. 28.14 907 4.3% 3.1% 9.7x 12.5x 11.9x 1.19x 1.27x 0.88% 62.2% 31.9% 94.1% 2.38% 13.0% EMCI EMC Insurance Group Inc. 25.65 533 13.8% 1.4% 10.6x 14.3x 14.6x 1.02x 1.02x 3.00% 65.0% 31.3% 96.3% 3.69% 9.7% DGICA Donegal Group Inc. 14.38 375 -8.5% 2.1% 19.2x 10.3x 9.0x 0.92x 0.93x 3.84% 65.8% 33.2% 99.0% 2.69% 4.9% HALL Hallmark Financial Services, Inc. 11.50 220 8.5% -1.6% 10.2x 9.6x 9.2x 0.84x 1.09x 0.00% 65.9% 28.0% 93.9% 2.43% 8.4% AFH Atlas Financial Holdings, Inc. 18.14 218 2.7% -8.8% 16.1x 10.2x 8.4x 1.78x 1.90x 0.00% 59.2% 27.8% 87.0% 2.01% 11.9% Median 3,879 8.5% 2.0% 12.8x 12.4x 11.9x 1.25x 1.29x 2.26% 61.0% 31.7% 94.1% 3.30% 9.8%
  9. 9. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 8 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Property Casualty 3/31/15 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div. Yield Underwriting Ratios Invest Yield LTM ROETicker Name LTM FY16E FY17E P/B P/TB Loss Expense Comb. Personal Lines ALL Allstate Corporation 67.37 25,668 -5.3% 8.5% 13.3x 12.4x 10.8x 1.41x 1.51x 1.93% 69.4% 25.5% 94.9% 3.98% 10.2% PGR Progressive Corporation 35.14 20,508 29.2% 10.5% 16.3x 17.6x 16.5x 2.81x 3.23x 2.79% 72.1% 20.4% 92.5% 2.65% 17.4% MCY Mercury General Corporation 55.50 3,062 -3.9% 19.2% 41.1x 20.8x 19.5x 1.68x 1.75x 5.33% 72.5% 26.7% 99.2% 1.16% 4.0% NGHC National General Holdings Corporation 21.59 2,279 15.5% -1.2% 17.0x 11.4x 9.9x 1.76x 2.74x 0.55% 64.9% 29.1% 94.0% 2.80% 10.6% HMN Horace Mann Educators Corporation 31.69 1,286 -7.3% -4.5% 14.4x 14.0x 12.5x 1.02x 1.06x 3.01% 70.5% 26.5% 97.0% 4.57% 7.0% STFC State Auto Financial Corporation 22.06 911 -9.2% 7.1% 17.9x 16.4x 13.5x 1.03x 1.03x 1.94% 67.9% 33.6% 101.5% 3.86% 5.8% IPCC Infinity Property and Casualty Corp. 80.50 898 -1.9% -2.1% 17.8x 17.1x 15.6x 1.31x 1.47x 2.09% 76.9% 18.7% 95.6% 2.48% 7.4% SAFT Safety Insurance Group, Inc. 57.06 861 -4.5% 1.2% NM 14.8x 14.0x 1.34x 1.34x 4.97% 83.0% 29.0% 112.0% 3.32% -2.1% UVE Universal Insurance Holdings, Inc. 17.80 625 -30.4% -23.2% 6.0x 5.9x 5.5x 2.13x NA 2.07% 37.2% NA NA 0.93% 41.5% SNC State National Companies, Inc. 12.60 538 26.6% 28.4% 12.5x 12.6x 11.2x 2.04x 2.09x 2.45% NA NA NA 2.65% 17.3% HRTG Heritage Insurance Holdings, Inc. 15.97 486 -27.4% -26.8% 5.2x 5.7x 4.8x 1.36x 1.40x 0.92% 37.5% 27.5% 65.0% 1.53% 29.9% UIHC United Insurance Holdings Corp. 19.21 413 -14.6% 12.3% 15.0x 11.3x 9.2x 1.73x 1.75x 1.17% 54.5% 39.5% 94.0% 1.95% 12.4% FNHC Federated National Holding Company 19.66 271 -35.8% -33.5% 6.7x 7.2x 6.4x 1.17x 1.17x 0.68% 49.7% 38.2% 87.9% 2.47% 19.2% Median 898 -5.3% 1.2% 14.7x 12.6x 11.2x 1.41x 1.49x 2.07% 68.7% 27.5% 94.9% 2.65% 10.6%
  10. 10. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 9 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Property Casualty 3/31/15 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div. Yield Underwriting Ratios Invest Yield LTM ROETicker Name LTM FY16E FY17E P/B P/TB Loss Expense Comb. Specialty Lines MKL Markel Corporation 891.57 12,445 15.9% 0.9% 21.4x 34.0x 33.0x 1.59x 2.12x 0.00% 50.7% 38.1% 88.8% 2.49% 7.5% ACGL Arch Capital Group Ltd. 71.10 8,719 15.4% 1.9% 17.4x 17.3x 16.6x 1.48x 1.51x 0.00% 54.9% 34.6% 89.5% 1.02% 8.7% WRB W. R. Berkley Corporation 56.20 6,930 11.3% 2.6% 14.5x 16.4x 15.9x 1.51x 1.59x 0.88% 60.5% 33.2% 93.7% 3.71% 11.0% WTM White Mountains Insurance Group, Ltd. 802.60 4,514 17.3% 10.4% 15.9x 105.6x 68.0x 1.15x 1.28x 0.14% 59.7% 36.9% 96.6% 5.11% 7.6% ENH Endurance Specialty Holdings Ltd. 65.34 4,365 6.9% 2.1% 11.4x 10.0x 10.1x 0.99x 1.14x 2.19% 46.4% 36.5% 82.9% 1.64% 8.9% AWH Allied World Assurance Company Holdings, AG 34.94 3,178 -13.5% -6.1% 39.3x 16.2x 14.7x 0.90x 1.05x 2.70% 63.7% 31.4% 95.1% 0.62% 2.3% ESGR Enstar Group Limited 162.58 3,132 14.6% 8.4% 14.3x 13.0x 12.5x 1.24x 1.35x 0.00% NA NA NA 1.35% 9.2% RLI RLI Corp. 66.86 2,911 27.6% 8.3% 21.4x 29.3x 29.7x 3.54x 3.87x 1.23% 42.7% 41.8% 84.5% 5.38% 16.5% AGII Argo Group International Holdings, Ltd. 52.17 1,603 14.4% -4.1% 10.0x 14.9x 14.1x 0.96x 1.11x 1.34% 55.8% 39.4% 95.2% 2.69% 9.8% OB OneBeacon Insurance Group, Ltd. 12.73 1,210 -16.3% 2.6% 33.5x 17.7x 18.2x 1.21x NA 6.77% 59.6% 36.7% 96.3% 0.40% 3.6% NAVG Navigators Group, Inc. 83.87 1,210 7.7% -2.2% 15.3x 16.1x 16.1x 1.10x 1.11x 0.00% 58.2% 35.9% 94.1% 2.62% 7.6% JRVR James River Group Holdings, Ltd. 32.26 934 37.1% -3.8% 17.7x 14.9x 13.5x 1.37x 2.03x 1.91% 60.5% 33.5% 94.0% 3.01% 7.7% NATL National Interstate Corporation 29.92 596 6.6% 12.1% 28.5x 19.0x 18.1x 1.66x 1.70x 1.95% 80.6% 19.8% 100.4% 2.44% 5.8% GBLI Global Indemnity plc 31.13 543 12.2% 7.3% 18.4x 25.9x 24.0x 0.72x 0.75x 0.00% 54.6% 39.9% 94.5% 1.78% 4.6% BWINB Baldwin Lyons, Inc. 24.61 370 4.9% 2.4% 15.9x 14.5x 14.5x 0.94x 0.94x 4.16% 59.2% 32.2% 91.4% 1.51% 5.8% CNFR Conifer Holdings, Inc. 6.53 50 NA -29.6% NM 9.3x 6.9x 0.65x 0.63x 0.00% 56.8% 45.3% 102.1% 1.79% 0.1% Median 2,257 12.2% 2.3% 17.4x 16.3x 16.0x 1.18x 1.28x 1.05% 58.2% 36.5% 94.1% 2.11% 7.6% Workers’ Compensation Focus AFSI AmTrust Financial Services, Inc. 25.88 4,553 -9.2% -15.9% 9.2x 8.6x 7.7x 1.88x 2.80x 1.95% 66.7% 24.3% 91.0% 2.99% 20.1% PRA ProAssurance Corporation 50.60 2,687 10.2% 4.3% 24.0x 19.7x 19.9x 1.37x 1.62x 2.56% 59.2% 31.3% 90.5% 1.75% 5.6% AMSF AMERISAFE, Inc. 52.54 1,005 13.6% 3.2% 14.2x 14.7x 14.4x 2.21x 2.21x 1.18% 57.1% 22.7% 79.8% 2.24% 15.6% Median 2,687 10.2% 3.2% 14.2x 14.7x 14.4x 1.88x 2.21x 1.95% 59.2% 24.3% 90.5% 2.24% 15.6% Median All Sub-Groups 1,603 7.8% 2.1% 15.3x 14.3x 13.5x 1.34x 1.42x 1.94% 60.2% 32.1% 94.1% 2.65% 9.2%
  11. 11. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 10 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Reinsurance 3/31/15 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div. Yield Underwriting Ratios Invest Yield LTM ROETicker Name LTM FY16E FY17E P/B P/TB Loss Expense Comb. XL XL Group plc 36.80 10,847 0.0% -6.1% 8.9x 11.9x 9.3x 0.93x 1.15x 1.84% 58.4% 33.6% 92.0% 2.62% 11.1% RE Everest Re Group, Ltd. 197.43 8,429 13.5% 7.8% 8.9x 10.8x 10.5x 1.11x 1.12x 2.18% 56.6% 26.8% 83.4% 1.67% 12.9% AXS AXIS Capital Holdings Limited 55.46 5,328 7.5% -1.4% 9.2x 13.1x 12.4x 1.02x 1.03x 2.17% 59.0% 35.7% 94.7% 1.12% 10.9% RNR RenaissanceRe Holdings Ltd. 119.83 5,237 20.2% 5.9% 12.9x 12.9x 12.3x 1.21x 1.29x 1.06% 32.0% 32.7% 64.7% 1.13% 9.3% VR Validus Holdings, Ltd. 47.19 3,912 12.1% 1.9% 10.9x 10.7x 10.7x 1.08x 1.18x 2.77% 43.5% 36.2% 79.7% 1.24% 10.3% AHL Aspen Insurance Holdings Limited 47.70 2,906 1.0% -1.2% 10.5x 10.8x 10.5x 1.02x 1.03x 1.72% 55.2% 36.7% 91.9% 2.36% 9.5% TPRE Third Point Reinsurance Ltd. 11.37 1,199 -19.6% -15.2% NM 12.5x 5.3x 0.87x 0.87x 0.00% 68.9% 35.8% 104.7% -1.05% -6.0% MHLD Maiden Holdings, Ltd. 12.94 954 -12.7% -13.2% 9.9x 7.5x 6.5x 1.10x 1.21x 3.55% 66.9% 32.4% 99.3% 3.18% 9.9% GLRE Greenlight Capital Re, Ltd. 21.79 807 -31.5% 16.5% NM 6.2x 5.9x 0.98x 0.98x 0.00% 77.6% 34.2% 111.8% -10.16% -31.8% BCRH Blue Capital Reinsurance Holdings Ltd. 17.92 157 3.5% 4.5% 7.6x 9.5x 8.9x 0.84x NA 7.00% 6.9% 38.4% 45.3% 0.00% 11.4% Median 3,409 2.3% 0.4% 9.5x 10.8x 9.9x 1.02x 1.12x 2.00% 57.5% 35.0% 92.0% 1.19% 10.1% Multiline 3/31/15 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div. Yield Underwriting Ratios Invest Yield LTM ROETicker Name LTM FY16E FY17E P/B P/TB Loss Expense Comb. HIG Hartford Financial Services Group, Inc. 46.08 18,516 10.2% 6.0% 11.6x 11.4x 10.4x 1.05x 1.08x 1.93% 66.2% 30.4% 96.6% 3.81% 9.1% AMP Ameriprise Financial, Inc. 94.01 16,079 -28.1% -11.7% 11.1x 9.7x 8.4x 2.23x 3.07x 2.52% 97.7% 15.8% 113.5% 3.50% 19.9% AIZ Assurant, Inc. 77.15 5,080 25.6% -4.2% 37.6x 12.9x 10.9x 1.12x 1.49x 2.48% NA NA NA 4.38% 2.9% ANAT American National Insurance Company 115.50 3,106 17.4% 12.9% 12.8x NA NA 0.70x 0.70x 3.13% 67.3% 32.0% 99.3% 4.46% 5.4% KMPR Kemper Corporation 29.57 1,518 -24.1% -20.6% 17.9x 17.3x 13.8x 0.76x 0.91x 2.58% 76.8% 26.0% 102.8% 4.99% 4.2% Median 5,080 10.2% -4.2% 12.8x 12.1x 10.6x 1.05x 1.08x 2.52% 72.1% 28.2% 101.1% 4.38% 5.4%
  12. 12. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 11 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Life Health 3/31/16 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div.Yield Invest. Yield ROE Ticker Name LTM FY15E FY16E P/B P/TB LTM FY16E FY17E MET MetLife, Inc. 43.94 48,247 -13.1% -8.9% 9.6x NA NA 0.73x 0.86x 3.11% 4.64% 7.5% 9.8% 9.7% PRU Prudential Financial, Inc. 72.22 32,290 -10.1% -11.3% 5.9x 7.4x 6.9x 0.77x 0.79x 3.44% 4.39% 13.2% 12.3% 12.1% AFL Aflac Incorporated 63.14 26,795 -1.4% 5.4% 10.8x 10.0x 9.4x 1.51x NA 2.74% 3.18% 14.3% 15.4% 14.1% PFG Principal Financial Group, Inc. 39.45 11,496 -23.2% -12.3% 9.7x 9.3x 8.6x 1.23x 1.66x 3.38% 4.60% 12.5% 12.5% 12.8% LNC Lincoln National Corporation 39.20 9,558 -31.8% -22.0% 8.7x 6.2x 5.6x 0.70x 0.85x 1.99% 4.61% 7.7% 10.8% 10.7% UNM Unum Group 30.92 7,449 -8.3% -7.1% 8.8x 8.1x 7.5x 0.86x 0.88x 2.22% 4.77% 10.1% 10.5% 10.4% TMK Torchmark Corporation 54.16 6,628 -1.4% -5.2% 13.0x 12.4x 11.5x 1.63x 1.83x 0.94% 5.18% 11.8% 13.5% 13.3% RGA Reinsurance Group of America, Inc. 96.25 6,276 3.3% 12.5% 12.9x 10.6x 9.8x 1.02x 1.02x 1.73% 5.01% 7.6% 10.7% 10.9% VOYA Voya Financial, Inc. 29.77 6,225 -30.9% -19.3% 16.5x 9.1x 7.6x 0.46x 0.47x 0.11% 4.48% 2.7% 8.0% 8.6% CNO CNO Financial Group, Inc. 17.92 3,298 4.1% -6.1% 12.9x 12.1x 10.6x 0.80x 0.80x 1.47% 5.49% 6.1% 7.6% 8.2% PRI Primerica, Inc. 44.53 2,151 -12.5% -5.7% 12.0x 10.7x 9.4x 1.88x 1.98x 1.36% 4.00% 15.9% 17.5% 19.0% FGL Fidelity Guaranty Life 26.24 1,547 23.8% 3.4% 10.1x 11.8x 10.5x 1.11x NA 1.02% 5.08% 9.6% 9.1% NA FFG FBL Financial Group, Inc. 61.52 1,526 -0.8% -3.3% 13.6x 14.8x 14.1x 1.35x 1.36x 2.51% 5.13% 9.5% NA NA AEL American Equity Investment Life Holding Company 16.80 1,367 -42.3% -30.1% 6.2x 6.7x 6.2x 0.70x 0.70x 0.92% 4.40% 10.8% 9.2% 9.8% GNW Genworth Financial, Inc. 2.73 1,359 -62.7% -26.8% NM 3.2x 2.9x 0.11x 0.11x 0.00% 4.13% -4.4% 2.4% 2.9% NWLI National Western Life Group, Inc. 230.63 839 -9.3% -8.5% 8.3x NA NA 0.52x 0.52x 0.14% 5.04% 6.2% NA NA KCLI Kansas City Life Insurance Company 40.00 387 -12.9% 4.5% 14.5x NA NA 0.58x 0.58x 2.82% 4.59% 4.0% NA NA CIA Citizens, Inc. 7.24 363 17.5% -2.6% NM NA NA 1.50x 1.62x 0.00% 3.89% -1.4% NA NA IHC Independence Holding Company 15.92 275 17.1% 14.9% 9.3x NA NA 0.85x 1.08x 0.65% 4.44% 9.9% NA NA Median 2,724 -8.8% -5.9% 10.4x 9.6x 9.0x 0.85x 0.87x 1.41% 4.59% 9.6% 10.7% 10.8%
  13. 13. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 12 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Managed Care 3/31/16 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Price / Earnings Price / Book Div.Yield Invest. Yield ROE Ticker Name LTM FY15E FY16E P/B P/TB LTM FY16E FY17E UNH UnitedHealth Group Incorporated 128.90 122,842 9.0% 9.6% 21.4x 16.7x 14.7x 3.63x NA 1.70% 2.59% 17.7% 16.6% NA AET Aetna Inc. 112.35 39,266 5.5% 3.9% 16.6x 14.1x 12.8x 2.44x NA 0.92% 3.81% 15.5% 16.1% NA ANTM Anthem, Inc. 138.99 36,309 -10.0% -0.3% 14.8x 12.7x 11.5x 1.58x NA 1.79% 3.47% 10.9% 11.8% NA CI Cigna Corporation 137.24 35,208 6.0% -6.2% 17.1x 14.9x 13.7x 2.93x 6.46x 0.03% 5.22% 18.4% 17.1% NA HUM Humana Inc. 182.95 27,129 2.8% 2.5% 21.7x 21.0x 18.5x 2.62x 4.03x 0.65% 3.25% 12.6% 11.7% 12.5% CNC Centene Corporation 61.57 7,410 -12.9% -6.4% 21.4x 14.6x 12.5x 3.44x 6.39x 0.00% 1.12% 18.3% 16.9% NA WCG WellCare Health Plans, Inc. 92.75 4,092 1.4% 18.6% 34.7x 20.6x 16.4x 2.37x 2.95x 0.00% 1.97% 7.1% NA NA MOH Molina Healthcare, Inc. 64.49 3,611 -4.2% 7.3% 25.0x 16.7x 13.6x 2.32x 3.94x 0.00% 0.40% 10.8% NA NA GTS Triple-S Management Corporation 24.86 621 25.1% 4.0% 12.3x 16.5x 14.4x 0.73x 0.76x 0.00% 4.95% 6.1% NA NA UAM Universal American Corp. 7.14 604 -33.1% 2.0% NM 45.2x 28.2x 1.58x 1.92x 0.00% 1.79% -28.0% NA NA Median 17,269 2.1% 3.2% 21.4x 16.6x 14.0x 2.40x 3.94x 0.01% 2.92% 11.7% 16.4% 12.5%
  14. 14. © 2016 Mercer Capital // www.mercercapital.com // Source: SP Global Market Intelligence 13 Mercer Capital’s Value Focus: Insurance Industry First Quarter 2016 Publicly Traded Companies Brokers 3/31/16 Price Market Cap ($M) Share Price %YOY Share Price %Qtr EV ($M) EV / EBITDA EV / LTM Rev. Div.Yield LTM EBITDA Margin LTM Rev. Growth Organic Rev Growth Ticker Name LTM FY16E FY17E 15Q4 15Q3 MMC Marsh McLennan Companies, Inc. 60.79 31,726 8.4% 9.6% 34,766 12.0x 11.3x 10.4x 2.7x 2.24% 22.4% -0.5% 5.0% 2.0% AON Aon plc 104.45 28,181 8.7% 13.3% 33,497 13.4x 12.1x 11.4x 2.9x 1.25% 21.4% -3.0% 5.0% 2.0% WLTW Willis Towers Watson Public Limited Company 118.66 8,141 -7.0% -7.8% 10,875 16.7x 6.1x 5.8x 2.8x 2.55% 16.8% 2.0% 4.8% 3.3% AJG Arthur J. Gallagher Co. 44.48 7,871 -4.9% 8.6% 9,844 13.5x 10.3x 9.5x 2.4x 3.62% 18.1% 13.3% 4.2% 4.1% BRO Brown Brown, Inc. 35.80 4,976 8.1% 11.5% 5,677 10.3x 9.9x 9.4x 3.4x 1.53% 33.1% 5.4% -3.0% 1.6% Median 8,141 8.1% 9.6% 10,875 13.4x 10.3x 9.5x 2.8x 2.24% 21.4% 2.0% 4.8% 2.0% InsurTech, Claims Services To 3/31/16 Price Market Cap ($M) Share Price %YOY Share Price %Qtr Total EV ($M) EV / EBITDA EV / LTM Rev. Div.Yield LTM EBITDA Margin LTM Rev. Growth LTM Rev. ($M)Ticker Name LTM FY16E FY17E GWRE Guidewire Software, Inc. 54.48 3,895 3.6% -6.4% 3,702 NM NM NM 9.7x 0.00% 4.5% 5.4% 383 EBIX Ebix, Inc. 40.79 1,363 34.3% 24.4% 1,513 14.9x NA NA 5.7x 0.91% 38.2% 23.9% 265 BNFT Benefitfocus, Inc. 33.35 974 -9.4% -8.4% 991 NM NM NM 5.4x 0.00% -23.0% 34.7% 185 CRVL CorVel Corporation 39.42 773 14.6% -10.2% 723 11.3x NA NA 1.5x 0.00% 12.9% 1.4% 497 CRD.B Crawford Company 6.48 358 -25.0% 22.0% 529 26.3x 4.7x 4.3x 0.4x 3.77% 1.6% 2.0% 1,242 PN Patriot National, Inc. 7.70 216 -39.4% 14.8% 332 18.8x 4.6x 3.9x 1.6x 0.00% 15.1% 78.8% 210 CNXR Connecture, Inc. 2.56 56 -75.3% -29.1% 100 29.2x 7.1x 4.8x 1.0x 0.00% 3.6% 13.3% 96 Median 773 -9.4% -6.4% 723 18.8x 4.7x 4.3x 1.6x 0.00% 4.5% 13.3% 265
  15. 15. Mercer Capital Insurance Industry Services Contact Us Copyright © 2016 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 Don Erickson, ASA 214.468.8400 ericksond@mercercapital.com Bryce Erickson, ASA, MRICS 214.468.8400 ericksonb@mercercapital.com Travis W. Harms, CFA, CPA/ABV 901.322.9760 harmst@mercercapital.com MERCER CAPITAL Memphis 5100 Poplar Avenue, Suite 2600 Memphis, Tennessee 38137 901.685.2120 Dallas 12201 Merit Drive, Suite 480 Dallas, Texas 75251 214.468.8400 Nashville 102 Woodmont Blvd., Suite 231 Nashville, Tennessee 37205 615.345.0350 www.mercercapital.com Underwriters • PC, life health, and managed care • Reinsurance • Captives and risk retention groups

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