Private equity investment in the insurance industry has increased in recent years due to new regulations and a lack of traditional capital sources for insurance companies. Partnering private equity firms with insurance companies and business process outsourcing (BPO) firms can generate significant value by improving efficiencies. BPO firms with insurance industry expertise can help private equity firms identify investment opportunities, evaluate targets, improve portfolio company performance, manage investments, support investor relations, and develop exit strategies. This allows private equity to generate higher returns and insurance companies to access more capital. The partnership between these three industries is poised for growth as each side recognizes the potential benefits.

1. Insurance Industry PE and BPO Partnerships Provide Innovative
Source of Capital Optimization and Increased Multiples
The insurance industry is a vast and largely untapped
source of potential wealth for private equity investors.
Traditionally, the insurance businesses have relied on
equity markets, fixed income funds, hedge funds, and invest-
ment banks for growth capital. Increasingly, however, insur-
ance firms are attracting capital from PE investors. There are
several reasons for the trend, including newer regulations that
make it more difficult for investment banks to deploy fresh
capital in the insurance market.
I’ve spent the past three decades providing global strate-
gy to insurance, banking and capital markets. I’ve had the
opportunity to be both a buyer and seller of the intelligent
outsourcing services offered by the BPO industry. From my
vantage point, I see an unprecedented opening in which unre-
alized efficiencies in the insurance industry can translate into
new income for private equity.
Number of PE Investments in Insurance Companies
Private equity investment in the insurance space has been a large
factor in recent years, especially of annuity businesses, brokers and
service companies. If certain regulatory concerns can be addressed, it
has the potential to really accelerate the pace of M&A insurance trans-
actions” - Eddie Best, partner, Mayer Brown LLP
The paucity of traditional sources of capital for the in-
surance industry creates lucrative opportunities for PE inves-
tors, and they are showing keen interest in pursuing deals
with insurance companies. The mutual attraction makes good
business sense on many levels. PE firms naturally seek non-
commoditized targets for investments; insurance companies
offer a perfect blend of safety, predictable returns and growth
potential.
Diversification in investment strategies and attractive
yields has led to increased investment in insurance and reinsur-
ance vehicles by hedge funds and PE funds. Premiums for insur-
ance and reinsurance products have increased, owing to cata-
strophic losses like Hurricane Sandy.
PE funds are also homing in on insurance and reinsurance
assets and the investments are prevalent in both Life and P&C
business segments. A number of PE funds have established spe-
cialist financial institution groups to evaluate investment in both
private and public insurance companies, many of which are trad-
ing at a discount to their book value.
Additionally, since PE firms typically don’t hold majority
interests in their portfolio companies, they are not held accounta-
ble for regulatory issues. New and upcoming regulations, how-
ever, are geared towards strengthening the policy holder protec-
tions as well as more scrutiny and transparency from PE firms.
Nevertheless, the timing is nearly perfect for both sides: PE
firms are looking for great investments and insurance companies
are looking for reliable sources of capital.
This trend of accelerated PE investments in insurance firms
also excites us here at Sutherland Global Services, one of the
world’s largest knowledge- and technology-driven BPO compa-
nies. Our research clearly indicates that carefully assembled
partnerships among PE, insurance and BPO firms can unleash
untapped synergistic value worth billions of dollars.
What would be required to establish those kinds of poten-
tially high-profit partnerships? The key is having an exceptional-
ly strong business process outsourcing organization that under-
stands the needs of both insurance companies and PE investment
firms, while having the requisite domain knowledge and opera-
tional capabilities for delivering measurable and tangible effi-
ciencies on a rapid timetable.
Our team at Sutherland has identified six specific catego-
ries of Private Equity related activities that can be efficiently
leveraged using the services of a knowledge-based BPO partner.
We believe these are the foundation for successfully initiating,
managing and sustaining PE investments within the insurance
segment or for that matter in any industry segment. Here is a
summary list of those six partnering opportunities:
1. Identify Fund Opportunities - Evaluate investment
themes, prepare detailed presentations highlighting investment
opportunities, and establish the niche investment value–
proposition.
2. Investment Target Identification and Evaluation - De-
velop detailed reports to highlight key investment themes leading
to a comprehensive short list of target investments; screen invest-
ment opportunities based on specific criteria developed in consul-
tation with the fund manager; perform detailed business valuation
of targeted companies with a review of value chain, operating and
financial parameters. Develop a detailed financial model with
revenue and operating drivers, financial projections, valuation
using various methodologies; assessing market attractiveness,
performing detailed competitive landscape/value chain analysis
and commercial due diligence support including checks on sup-
pliers/customers and market trends/risks.
3. Optimizing Portfolio Company Performance to In-
crease Fund Alpha - Create specialized industry/cluster-based
shared services models to help derive synergies from consolida-
tion of enabling functions. Consolidate similar functions of port-
folio companies in the same (or similar) sector to improve opera-
tional efficiency and rationalize investments in multiple systems
and redundant processes; provide analytics support for business
transformation, benchmark performance across marketing and
operations and evaluate sentiment across the entire value-chain,
including stakeholders, investors and customers.
4. Portfolio Monitoring and Management - Assist in ac-
tive management of portfolio by tracking changing geography/
sector compositions of competitor/benchmark indices, identifying
investment alternatives, modifying investments based on under-
and over-valued themes/geographies/sectors/companies; assist
fund manager by continuous tracking of sector/portfolio compa-
nies recent events news-flow and performance, periodic perfor-
mance evaluation, market performance monitoring relative to
sector/benchmark indices and evaluation of strategic investment
alternatives.
5. Manage Investor Relations - Support the marketing and
investor relations desk by developing periodic newsletters sup-
ported by industry analysis and white papers on emerging invest-
ment themes. Prepare fund presentations for the board and Portfo-
lio Company’s management.
6. Exit Strategy Support - Help develop suitable exit strategy
for portfolio companies based on market timings, identify divest-
ment route including IPO, stake sale, strategic acquirers, etc.;
help prepare investor communications including investment
Expert Advice: PE & Insurance BPO Models
Vik Renjen has been Senior Vice President and Global
Head of Banking, Financial Services & Insurance
(BFSI) of Sutherland Global Services, Inc. since July
16, 2007. Mr. Renjen joined Sutherland from AIG
where he was a Senior Executive responsible for formu-
lating and executing the global sourcing strategy. Mr.
Renjen's prior positions include eight years at Pruden-
tial, starting in Healthcare and Relocation then moving
to the Mortgage Capital entity where he was Senior Vice
President of Global Operations. He also served as a Vice
President for Chase Manhattan Bank for seven years in
various operations and systems roles. Mr. Renjen earned
an MBA from American University in Washington DC,
and graduated from University of Pennsylvania, The
Wharton School’s Executive Development Program. He
is based in the New York City area.
Sutherland Global Services
1160 Pittsford‐Victor Road
Pittsford, NY 14534
tel: +1‐585‐586‐5757
www.sutherlandglobal.com
memos and prospectus; carry out IRR analysis based on di-
vestment scenarios.
Clearly, the time is right for a closer relationship between the
PE and insurance industries. The financial incentives exist
and the market seems primed for making deals. Until recent-
ly, the missing ingredient was an experienced BPO partner
with domain driven insurance expertise and a deep
knowledge of Business Process Reengineering. A partner
that can efficiently, promptly and economically support the
PE firms in all facets of operational due diligence and then
partner with them to execute and generate cost savings of
30% or more, thereby accelerating the invested entity’s mul-
tiple growth. Today, we do have that proven expertise and
global infrastructure available in companies like Sutherland
Global Services that can be leveraged at an instance. Know-
ing the inherent value proposition of this partnership, I pre-
dict that it’s just a matter of time before it catches on but the
smart money is already leveraging this partnership as we
speak.
Vik Renjen
Senior Vice President
Global Head of Banking,
Financial Services & Insurance