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PwC Insurance deals insights

This publication includes the deal activity in the insurance sector such as overall highlights, key announced transactions, and the outlook ahead. Read our full report to learn more.

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PwC Insurance deals insights

  1. 1. Executive summary Insurance M&A markets remained active in the first half of 2016 despite the lack of mega deals. The largest transaction this year was BB&T Corp. acquiring wholesale insurance broker Swett & Crawford for $500 million in cash from London-based Cooper Gay Swett & Crawford. On a relative basis, the announced deal activity and value declined compared to 2015, where we saw a record number of transactions in the sector. 2015 was a transformative year in the insurance sector with several mega deals including ACE Ltd.'s acquisition of Chubb Corp. for $28 billion, Tokio Marine acquiring HCC Insurance Holdings for $7.5 billion, and Meiji Yasuda Life acquiring StanCorp Financial for $5 billion. • Deal volume remains strong with 232 announced deals in 1H 2106, 87% of which were comprised of insurance brokers. • There was a slight decline in transaction multiples with the median price to book multiple for insurance deals at 1.8x vs. 1.6x in 2H 2015. • There were no mega deals (deals more than $1 billion) announced during 1H 2016. The largest deal announced was worth $500 million. Optimize deals Key trends/Highlights Appetite for M&A remains strong driven by interest from foreign and private equity investors. Performance and regulatory concerns will likely spur activity including divestitures and acquisitions to enhance revenue. - John Marra Partner Insurance Deals Leader PwC Deals US Insurance Deals insights 1H 2016 Optimize Deals US Insurance Deals Insights 1H 2016 update 1 Optimize deals Source: S&P Global Market Intelligence Value by the numbers 95% Decrease in deal value versus 2H 2015 76% Decrease in deal value versus 1H 2015 $2.4B Volume by the numbers 8% Decrease in deal volume versus 2H 2015 13% Decrease in deal volume versus 1H 2015 232 232 Insurance deals were announced for $2.4 billion in deal value during 1H 2016 (including 204 deals with undisclosed deal values). Meaningful upcoming IPOs/carve-outs: 1) Athene filed for an IPO as it looks to further expand into the retirement services marketplace, 2) AIG’s United Guaranty also filed for IPO, reflecting AIG’s attempt to revamp its operational structure, and 3) MetLife rebranded its U.S. Retail business as Brighthouse Financial, which is the latest step in the insurers' plan to split off the business. Interest in M&A remains high. However, the focus for large insurers has shifted from consolidation to more technology- oriented deals, allowing insurers to be responsive to disruptions that they foresee in the business. We expect M&A activity to rebound in the second half of 2016 driven by the following: • Technology focused investments • Diversifying asset and wealth management capabilities • Continued interest from foreign and private equity investors in the sector • Insurers looking to divest businesses as a result of regulatory uncertainty (e.g. Department Of Labor (DOL) Fiduciary Rule, Brexit)
  2. 2. Optimize deals 172 214 268 253 232 $9.7 $4.4 $9.9 $44.2 $2.4 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 0 50 100 150 200 250 300 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 Dealvalue($bn) Dealvolume Announced deal volume Announced deal value ($ Bn) Insurance deal volume and value Source: S&P Global Market Intelligence 2014 20162015 Trading Multiples Significant transactions BB&T Corporation announced its acquisition of Swett & Crawford Group Inc., growing its wholesale brokerage business in the U.S. Massachusetts Mutual announced its acquisition of MetLife’s U.S. retail advisor force, allowing the expansion of its U.S. client base. MetLife chose to divest in response to the looming DOL Fiduciary rule. Insurance activity remains high U.S. insurance deal volume had been steadily increasing since 2013. While volume remains high in 1H 2016, it has declined compared to the same period in 2015. Announced deal values in 1H 2016 were nowhere close to the record levels seen in 2015. Highlights of 1H 2016 deal activity Optimize Deals US Insurance Deals Insights 1H 2016 update 2 Month Announced Target Name Acquirer Name Sector Value ($ in Mn) % of Total 2/24/2016 Swett & Crawford Group Inc. BB&T Corporation P&C Brokerage 500 20.6% 4/13/2016 CIFG Holding, Inc. Assured Guaranty Corp. P&C 451 18.6% 1/25/2016 Century-National Insurance Company / Western General Agency Inc. National General Holdings Corporation P&C 318 13.1% 2/29/2016 MetLife Premier Client Group Massachusetts Mutual Life Insurance Co. Life Brokerage 300 12.4% 3/16/2016 Northern Homelands Company Hartford Fire Insurance Company P&C 170 7.0% Top 5 deal value 1,739 71.8% Total disclosed deal value 2,422 Top 5 US Insurance Deals Announced 1H 2016 (by value) Source: S&P Global Market Intelligence, Excludes Managed Care Property & Casualty Insurance Price to Tangible Book Life Insurance Price to Tangible Book Insurance Brokers Enterprise Value to EBITDA Trading multiples in the three sectors have remained relatively stable from 2H 2015 to 1H 2016. However, for life insurance companies, multiples decreased in 1H 2016. Source: Capital IQ, Inc. 1H multiples as of June 30 and 2H multiples as of December 31. Graphs illustrate the median multiples of the top constituents of each sector (20 companies for P&C insurance, 20 companies for life insurance and 5 companies for insurance brokers) based on market capitalization as of June 30, 2016. 1.43x 1.55x 1.42x 1.53x 1.49x 1.4x 1.4x 1.5x 1.5x 1.6x 1.6x 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2014 20162015 1.80x 1.93x 1.95x 1.83x 1.53x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2014 20162015 12.04x 11.65x 12.12x 11.61x 12.73x 8.0x 9.0x 10.0x 11.0x 12.0x 13.0x 14.0x 15.0x 1H 2014 2H 2014 1H 2015 2H 2015 1H 2016 2014 20162015
  3. 3. Optimize deals Sub-sectors highlights • The persistent low interest rate environment has weighed on life insurers’ investment portfolios. Furthermore, the unprecedented U.K. vote to break away from the European Union increased the volatility of both the U.S. dollar and Euro value relative to the pound, and decreased the likelihood of near term rate increases by the Fed. Last year, major deals involved the largest Chinese and Japanese life insurers venturing out of their home markets. While Asian investors still have an active interest in expanding, regulatory uncertainty remains for Chinese buyers pending the resolution of the announced Fidelity & Guaranty Life acquisition. • We expect momentum to pick up from small to medium size companies as they are focused on building much- needed scale and the need to comply with enhanced regulations. • The insurance broker segment continues to be the most active in terms of deal volume. This year we have seen the five most active regional brokers to be Hub International, AssuredPartners, Inc., Arthur J. Gallagher & Co., Confie Seguros California, Inc., and Acrisure, LLC. 5% 8% 87% Life P&C Broker 21% 48% 30% Source: S&P Global Market Intelligence Sub-sector deals by volume and value Conclusion and outlook We expect activity to intensify for the remaining part of the year as insurers are focused on the disruption to their businesses due to technology, adapting to an evolving regulatory landscape, and an uncertain macroeconomic environment. • Technology: According to the 2016 PwC Global FinTech Survey, 21% of insurance business is at risk of being lost to standalone InsureTech companies within five years. The rise of shared mobility, “gig” economy, robotics, and sensors are disrupting several areas of insurance. Incumbents have been responding by direct investment in start-ups or forming joint ventures to stay competitive. Recent examples include ACE’s investment in CoverHound and Marsh’s acquisition of Dovetail Insurance. • Macroeconomic environment: The global market volatility, persistent low interest rates, and the uncertainty around Brexit continue to constrain insurers’ revenues and profitability. Life insurers have used both divestitures and acquisitions to manage the damaging impacts of the low- return environment and transform their business models. Renewed interest in diversifying asset management capabilities by way of acquisitions. • Regulatory environment & shareholder activism: Increased scrutiny and uncertainty have heavily influenced insurers’ business models and strategies, forcing many to exit businesses. The recent DOL Fiduciary Rule continues to be an obstacle for life/annuity insurers as it can cause insurers that use exclusive agents to evaluate their product offerings and firm structure. Recent examples include MetLife shedding its U.S. adviser unit to Massachusetts Mutual Life Insurance Co. and AIG selling its Advisor Group to Lightyear Capital and PSP Investments. AIG continues to simplify their organization, in part due to the aggressive stance from activist investor Carl Icahn. • Foreign entrants: Asian insurers, specifically Japanese insurers looking for growth and Chinese insurers seeking diversification, have a continued interest in U.S. and European insurers. • Private equity/Hedge Funds/Family Offices: Non- traditional firms have maintained strong interest in runoff long tail liabilities. They have expanded beyond insurance brokers and the annuities business to include other sectors within insurance, including managing general agents. 1H 2016 Volume 1H 2016 Value 232 $2.4 B Optimize Deals US Insurance Deals Insights 1H 2016 update 3 Key trends and insights
  4. 4. Optimize dealsFor a deeper discussion on deal considerations, please contact one of our practice leaders or your local Deals partner: John Marra Partner, Insurance Deals Leader +1 646 471 5970 john.p.marra@pwc.com Denise Cutrone Partner, Transaction Services +1 678 419 1990 denise.cutrone@pwc.com Leslie G. Fenton Managing Director PricewaterhouseCoopers Corporate Finance LLC +1 312 298 5866 leslie.g.fenton@us.pwc.com Nisha Sheth Principal, Transaction Services +1 646 471 2164 nisha.sheth@pwc.com Authors: Mark Friedman Director, Transaction Services +1 646 471 7382 mark.friedman@pwc.com Christopher Gaskin Director, Transaction Services +1 312 298 3343 christopher.gaskin@pwc.com Ritendra Roy Director PricewaterhouseCoopers Corporate Finance LLC +1 646 471 8140 ritendra.roy@us.pwc.com Smart deal makers are perceptive enough to see value others have missed, flexible enough to adjust for the unexpected, aggressive enough to win favorable terms in a competitive environment, and circumspect enough to envision the challenges they will face from the moment the contract is signed. But in a business environment where information can quickly overwhelm, the smartest deal makers look to experienced advisors to help them fashion a deal that works. PwC’s Deals group can advise insurance companies and insurance-focused private equity firms on key M&A decisions, from identifying acquisition or divestiture candidates and performing detailed buy-side diligence, to developing strategies for capturing post-deal profits and exiting a deal through a sale, carve-out, or IPO. With more than 9,800 deals professionals in 75 countries, we can deploy seasoned teams that combine deep insurance sector skills with local market knowledge virtually anywhere and everywhere your company operates or executes transactions. Although every deal is unique, most will benefit from the broad experience we bring to delivering strategic M&A advice, due diligence, transaction structuring, M&A tax, merger integration, valuation, and post-deal services. In short, we offer integrated solutions, tailored to your particular deal situation and designed to help you extract peak value within your risk profile. Whether your focus is deploying capital through an acquisition or joint venture, raising capital through an IPO or private placement, or harvesting an investment through the divesture process, we can help. For more information about M&A and related services in the insurance sector, please visit http://www.pwc.com/optimizedeals or http://www.pwc.com/us/en/insurance. About the data The information presented in this report is an analysis of deals in the insurance industry (excluding managed care) where the target company, the target ultimate parent company was located in the United States of America. Deal information was sourced from S&P Global Market Intelligence and includes deals for which targets are: Insurance underwriter and insurance broker (multiline, property & casualty, life & health, title, mortgage guaranty, and financial guaranty). Certain adjustments have been made to the information to exclude transactions which are not specific to the sector or incorporate relevant transactions that were omitted from the indicated mid industry codes. This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, and acquisitions announced between January 1, 2014 and June 30, 2016, with a deal status of completion, definitive agreement, or nonbinding letter of intent. Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals. © 2016 PwC. All rights reserved. “PwC” and “PwC US” refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors 148535-2016 vc About PwC’s Deals Practice Contributions made by Sonu Balwani.

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