Post on 19-Jan-2016
THE INSURANCE VALUE CHAIN: KEY INVESTMENT THEMES
John KraskaSeptember 2, 2015
The Insurance Value Chain Is “In Play”: Key Investment Themes | 2
Peak Market Cap Of $755B In May 2007
Peak Market Cap Of $755B In May 2007
AIG
Berkshire
U.S. & BERMUDA P&C U/W MARKET CAP “ONLY” $354B
AIG Market Cap ~45% Of P/C Industry Market Cap In Late 2000. Berkshire Hathaway ~42% Now
Currently $869BCurrently $869B
The Insurance Value Chain Is “In Play”: Key Investment Themes | 3
SMALL MARKET CAP LACK OF INVESTOR INTEREST FOR U.S. P&C INDUSTRY
Property Casualty Underwriters (Ex. AIG, BRK)
Only $354B
Property Casualty Underwriters (Ex. AIG, BRK)
Only $354B
The Insurance Value Chain Is “In Play”: Key Investment Themes | 4
25 YEARS OF DECLINING PEAK VALUATIONS
Source: FactSet, Dowling & Partners Analysis
The Insurance Value Chain Is “In Play”: Key Investment Themes | 5
TOP WORLDWIDE GROUPS BY MARKET CAP … ASIA SHOWING INCREASED M&A APPETITE ABROAD
* Berkshire Hathaway Bubble Not Shown ($350B), Includes Fairfax (Canada); ** Includes QBE (Australia); Source: FactSet
v2.0
The Insurance Value Chain Is “In Play”: Key Investment Themes | 6
CYCLICAL CHANGES SUPPRESSING RETURNS: LOWER INTEREST RATES & LEVERAGE
Source: A.M. Best Aggregates & Averages, D&P Estimates, U.S. Department of Treasury, Company Reports
“New Money Rate”
“Imbedded Yield”
The Insurance Value Chain Is “In Play”: Key Investment Themes | 7
New Money Pre-tax Investment Yield
P:S 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
70% 80.7% 81.9% 83.2% 84.4% 85.7% 86.9% 89.5% 92.2% 94.9% 97.6% 100.5%
80% 83.4% 84.5% 85.7% 86.8% 88.0% 89.2% 91.6% 94.1% 96.7% 99.3% 101.9%
90% 85.5% 86.5% 87.6% 88.7% 89.9% 91.0% 93.3% 95.7% 98.1% 100.5% 103.0%
100% 87.1% 88.1% 89.2% 90.3% 91.3% 92.4% 94.6% 96.9% 99.2% 101.6% 104.0%
110% 88.5% 89.5% 90.5% 91.5% 92.5% 93.6% 95.7% 97.9% 100.1% 102.4% 104.7%
120% 89.6% 90.6% 91.5% 92.5% 93.6% 94.6% 96.6% 98.7% 100.9% 103.1% 105.3%
130% 90.5% 91.5% 92.4% 93.4% 94.4% 95.4% 97.4% 99.5% 101.5% 103.7% 105.8%
140% 91.3% 92.3% 93.2% 94.2% 95.1% 96.1% 98.1% 100.1% 102.1% 104.2% 106.3%
150% 92.1% 93.0% 93.9% 94.8% 95.8% 96.7% 98.6% 100.6% 102.6% 104.6% 106.7%
160% 92.7% 93.6% 94.5% 95.4% 96.3% 97.2% 99.1% 101.0% 103.0% 105.0% 107.0%
170% 93.2% 94.1% 95.0% 95.9% 96.8% 97.7% 99.6% 101.5% 103.4% 105.3% 107.3%
180% 93.7% 94.6% 95.5% 96.3% 97.2% 98.1% 100.0% 101.8% 103.7% 105.6% 107.6%
190% 94.1% 95.0% 95.9% 96.7% 97.6% 98.5% 100.3% 102.1% 104.0% 105.9% 107.8%
200% 94.5% 95.4% 96.2% 97.1% 98.0% 98.8% 100.6% 102.4% 104.3% 106.1% 108.0%
81%86%
ECONOMICS OF 12% AY ROE
Assumptions:Duration: 1.8 yearsExpense Ratio: 28%Surplus p/t Yield: 250bps over new money
2001
1985
Source: D&P Analysis
98%101%
106%108%
20-25 pts of Improvement Needed
The Insurance Value Chain Is “In Play”: Key Investment Themes | 8
DIFFERENT RETURN EXPECTATIONS OVER TIME
15% ROE ERA
ESTIMATED ULTIMATE
AY CR
CR NEEDED FOR 15% ROE
CR NEEDED FOR 10 YR TRS + 700BPS
CR NEEDED FOR 12% ROE
12% ROE ERA
SINGLE DIGIT?
Source: A.M. Best Aggregates & Averages; D&P Estimates
The Insurance Value Chain Is “In Play”: Key Investment Themes | 9
SECULAR CHANGES ARE PERMANENTLY ALTERING THE (RE)INSURANCE INDUSTRY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 10
CAT BONDS TOOK 15+ YEARS TO DISRUPT PRICING (2012)
June 1996
First Cat Bond
Issued In Dec-96 By St. Paul Re
The Insurance Value Chain Is “In Play”: Key Investment Themes | 11
THE PENSION FUND “MARTINI”
Source: Guy Carpenter
Pension Fund Capital Under Management$30 trillion
Global property cat limit $341 billion
Global retro capital <$30 billion
Global insurance sector capital (including life) $2.5 - $3 trillion
The Insurance Value Chain Is “In Play”: Key Investment Themes | 12
Guy Carpenter estimates non-traditional capacity at ~18% of total world wide cat limits. Ultimately, GC predicts alternative capacity could reach $115-150 by 2018.
“ALTERNATIVE CAPACITY” GAINS MARKET SHARE
Doubles In 5 Years
The Insurance Value Chain Is “In Play”: Key Investment Themes | 13
PENSION FUNDS DRIVE GROWTHNEPHILA ALONE HAS ADDED ~$7B SINCE 2009
“Nephila Gorilla”
Founded in ‘98 as part of
Willis;Sells in ‘03
Invested in Jun-08
The Insurance Value Chain Is “In Play”: Key Investment Themes | 14
PROPERTY CAT PREMIUMS = ~ 10% OF GLOBAL NON-LIFE REINSURANCE
Source: Guy Carpenter estimates (as of 3/1/15)
$144.9B$12.3B
$21.5B$0.8B
$84.4B$3.5B
$28.3B$1.9B
$47.1B$2.0B
2015 Global Cat Market:$341B Limit; $21B Premium
~$25B+~$4B+
Florida Remains The Global Cat Market “Peak Zone”
The Insurance Value Chain Is “In Play”: Key Investment Themes | 15
JUNE 1ST 2012: PRICE TAKER BECOMES PRICE MAKER = 3 RENEWALS IN FLORIDA
Note: “Expected” c. ratio assumes a loss and G&A expenses are held constant. 2011 base c. ratio considers a 45% loss ratio, 10% commission ratio and 5% G&A. ratio. Source: D&P Analysis
Assumes Rates Off 5-10% At Jun-15
The Insurance Value Chain Is “In Play”: Key Investment Themes | 16
Lloyd's
Bermuda102%83% 80%
97%
155%
223% 231%
D&P Reinsurers
60%
100%
140%
180%
220%
260%
Q2-09 Q2-10 Q2-11 Q2-12 Q2-13 Q2-14 CURRENT
Pric
e to
Tan
gibl
e B
ook
Valu
e
Florida Public Insurance Company Composite5 Year Price To Tangible Book Value
Lloyd's Bermuda Florida Public Composite D&P (Re)Insurance Composite
Source: Factset, Company Reports, D&P Analysis
Wind Season
D&P "TippingPoint"
FL Rates Down Another15-25% At 6/1/14
FL Rates Down 10-20% At 6/1/13FL Rates
Increase ModestlyAt 6/1/12
Wind Season
D&P "TippingPoint"
FL Rates Down Another15-25% At 6/1/14
FL Rates Down 10-20% At 6/1/13FL Rates
Increase ModestlyAt 6/1/12
Wind Season
D&P "TippingPoint"
FL Rates Down Another15-25% At 6/1/14
FL Rates Down 10-20% At 6/1/13FL Rates
Increase ModestlyAt 6/1/12
Wind Season
D&P "TippingPoint"
FL Rates Down Another15-25% At 6/1/14
FL Rates Down 10-20% At 6/1/13FL Rates
Increase ModestlyAt 6/1/12
FL PUBLIC COMPOSITE #1 SHORT-TERM BENEFICIARY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 17
SECULAR CHANGES ARE PERMANENTLY ALTERING THE (RE)INSURANCE INDUSTRY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 18
THE P/C (RE)INSURANCE VALUE CHAIN IS IN PLAY
Moving Further From The “Customer” = More Pressure On Returns
The (Re)Insurance Value Chain
The Insurance Value Chain Is “In Play”: Key Investment Themes | 19
CONSOLIDATION CHANGES THE BUSINESS
2014 2014 Top 20
Rank Broker Ownership ($, B) Mkt. Sh.
1 Marsh & McLennan Public (NYSE) $13.0 27%
2 Aon Public (NYSE) $12.0 25%
3 Arthur J. Gallagher Public (NYSE) $4.6 10%
4 Willis Group Holdings Public (NYSE) $3.8 8%
5 BB&T Insurance Bank / Public $1.8 4%6 JLT Public (LONDON) $1.7 4%7 Brown & Brown Public (NYSE) $1.6 3%8 Wells Fargo Insurance Bank / Public $1.6 3%9 Hub International Private Equity $1.3 3%10 Lockton Private $1.2 3%
TOP 10 $42.6 90%
11 USI Private Equity $0.9 2%12 Gras Savoye S.A. Private $0.8 2%13 Alliant Insurance Services Private Equity $0.6 1%14 Towers Watson & Co. Public (NYSE) $0.5 1%15 AssuredPartners Private Equity $0.5 1%16 Verspieren Private $0.4 1%17 BroadStreet Partners Private Equity $0.2 1%18 Leavitt Group Private $0.2 0%19 CBIZ Benefits Private $0.2 0%
20 Integro USA Private Equity $0.2 0%Top 20 $47.3 100%
Source: AM Best, Business Insurance, D&P Analy sis
Rec
ent T
rans
actio
ns→ PE
→ PE
→ PE
Relative
1989 1989* Top 20
Rank Broker ($, B) Mkt. Sh.
1 Marsh McLennan $2.5 27%2 Alexander & Alexander $1.2 14%3 Sedgwick Group $1.0 12%4 Johnson & Higgins $0.8 9%5 Corroon & Black $0.5 5%6 Willis Faber $0.5 5%7 Frank B. Hall $0.4 4%8 Rollins Burdick Hunter $0.3 4%9 Minet $0.3 3%10 Jardine Insurance Brokers $0.2 3%
TOP 10 $7.7 86%
11 C.E. Heath $0.2 2%12 Arthur J. Gallagher $0.2 2%13 Bain Clarkson PLC $0.2 2%14 Hogg Group PLC $0.2 2%15 Faugere & Jutheau $0.1 1%16 Jauch & Hubener $0.1 1%
17 Hudig-Langeveldt Group $0.1 1%18 Gras Savoye SA $0.1 1%19 Sodarcan $0.1 1%
20 Hilb, Rogal & Hamilton $0.1 1%TOP 20 $9.0 100%
Source: A.M. Best Review; *Brokerage Revenue
Independent
→ PE
→ PE
The Insurance Value Chain Is “In Play”: Key Investment Themes | 20
CHANGE IN OWNERSHIP OF TOP 100 BROKERS
Source: Dowling Hales
PublicManagementInsurance Co / OtherBankPrivate Equity 8
63
4
13
127
76
5 84
67%18%
3%5% 7%
2000
9
77
11
3
66%14%
2%
7% 12%
2013
By Revenue:
By Count:
62%24%
13%
1984
More Institutionalized Ownership
More Competitive Landscape
PE-backed Brokers Continue To Be Exceedingly Active On The M&A Front
The Insurance Value Chain Is “In Play”: Key Investment Themes | 21
PRIVATE EQUITY’S INFLUENCE ON M&A
Source: Dowling Hales, D&P Analysis
Broker Deals by Buyer Industry 2014 Broker Deals by Count
“Wave” 2 Buyers Will Be Aggressive Consolidators For Next 5-7 Years
The Insurance Value Chain Is “In Play”: Key Investment Themes | 22
M&A PIPELINE REMAINS STRONG
Brokers In Play = ~4.1K Firms And $20B of Revenue
Note: (1) Estimated using midpoint of each revenue category except for Extra Large and Jumbo Source: Independent Insurance Agents and Brokers of America, Business Insurance and Dowling Hales estimates.
Distribution by Number of Firms
Distribution by Revenue(1)
Target Market for Consolidators
~$20B of Revenue /
Target Market for
Consolidators
~4,088 Firms
The Insurance Value Chain Is “In Play”: Key Investment Themes | 23
• Heightened competition is driving “average” multiples for deals into upper single digits (approaching/exceeding 10x for larger deals) but does not tell the entire story
• Guaranteed purchase multiples have also moved higher (rather than a meaningful portion of the purchase price being held as an “earn out”) and the “price of entry” has increased (as shown by the minimum EBITDA multiples moving higher in recent periods)
• Valuation is also very much in the eye of the beholder as buyers are increasingly prospective looking and at times will even give credit to synergies / revenues that are much further down in the business plan (i.e. “transactional EBITDA”)
• This, lower interest rates / flexible lending and increased competition is the reason why multiples have moved up ~1-2x vs. long term averages
DEAL MULTIPLES, COMPETITION AND VALUATIONS
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
16.0 x
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Guaranteed Multiple EBITDA
Minimum Maximum Libor
PE Deals
Price ofEntry
Source: Dowling Hales, Intercontinental Exchange (“ICE”)
The Insurance Value Chain Is “In Play”: Key Investment Themes | 24
Power Pendulum Continues Shift To Intermediaries
P/E Owners Continue To Drive Consolidation (Buying Revenue)
Number of Primary Insurance Markets Utilized Will Decline
Increased Compensation to Intermediaries In Form Of:
• Supplemental / Contingent Commissions to Middle Market
• Broker Managed / Controlled Facilities With Larger Brokers
Pricing Pressure For Both Primary Carriers & Reinsurers
Intellectual Capital & Modeling Tools Advantage Buyer Over Seller
INTERMEDIARY CONSOLIDATION IMPLICATIONS
He Who Controls The Customer Wins
The Insurance Value Chain Is “In Play”: Key Investment Themes | 25
SECULAR CHANGES ARE PERMANENTLY ALTERING THE (RE)INSURANCE INDUSTRY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 26
“HEDGE FUND RE” = IT’S ALL ABOUT TAXES
“And probably from the structural point of view, the most disturbing one is hedge funds that offer tax benefits to the high income individuals that invest with them and, at the same time, go big time into asset risk, can afford, for that reason, higher combine ratios. And this, of course, is a deja vu for many of us, because we used to call that cash flow underwriting. And it may end in tears sooner or later because others may follow suit, even though the hedge fund part of the business so far is of course relatively small.”
– Munich Re (August 7th 2014)
The Insurance Value Chain Is “In Play”: Key Investment Themes | 27
3 LEGS FOR A SUCCESSFUL TOTAL RETURN UNDERWRITER
Asset Manager Capital
Underwriter
Fees&
Tax Savings
Offensive •“Capital Lighter” Model = ↑ ROE•New Business At Lower Return
Defensive •Retain Business Under “Watfordization” Pressure
• Permanent Assets• Additional Fees / Product
• Raising Initial $750M+• Higher A/Tax Return
The Insurance Value Chain Is “In Play”: Key Investment Themes | 28
The “De Facto” Regulator
+New Business Penalty
SIMPLIFIED VIEW OF A.M. BEST’S BCAR FINANCIAL MODEL FOR STARTUP REINSURER…
= A.M. Best Requirements For The Needed
“A-” Rating
• Known Underwriter(s) W/ Long-Term Track Record
• Credible / Executable Business Plan = Where Does Premium Come From?
• Money Manager(s) Pass Strict Due Diligence
• Equity Is Knowledgeable About (Re)Insurance
The Insurance Value Chain Is “In Play”: Key Investment Themes | 29
HEDGE FUND REINSURANCE MODELS
$1.2B
$1.5B
$1.2B
$0.5B
$1.1B
Capital ($,B)(David Einhorn)
(Dan Loeb)
(Two Sigma)
(John Paulson)
(Highbridge Capital)
$0.8B*(Golub Capital)
* Press reports suggested target capital of $750M for Golub Capital and Pine River Re
Pine River Re(Pine River Capital)
$0.8B*
$1.0B(BlackRock)
“Content” Is King Model
Potential New Sponsors ?
The Insurance Value Chain Is “In Play”: Key Investment Themes | 30
WATFORD VS. ARCH RE: PRICING IMPACT
X
X
=
8pt Δ
78%?
The Insurance Value Chain Is “In Play”: Key Investment Themes | 31
IT’S NOT NEW…TOTAL RETURN (RE)INSURERS
Source: Company Reports, Dowling & Partners Analysis
The Insurance Value Chain Is “In Play”: Key Investment Themes | 32
LLOYD’S = 326 YEARS OF TOTAL RETURN UNDERWRITING
The Insurance Value Chain Is “In Play”: Key Investment Themes | 33
SECULAR CHANGES ARE PERMANENTLY ALTERING THE (RE)INSURANCE INDUSTRY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 34
AJIT JAIN: KEEPS A LID ON PROSPECTIVE PRICING
Source: A.M. Best Aggregates & Averages; 2014 Projected
The Insurance Value Chain Is “In Play”: Key Investment Themes | 35
BURLINGTON NORTHERN RANKS AMONG THE LARGEST OF GLOBAL REINSURERS
Source: Company Reports, D&P Analysis
??
The Insurance Value Chain Is “In Play”: Key Investment Themes | 36
AJIT REACTS TO SECULAR INDUSTRY TRENDS
Ajit Reacts
The Insurance Value Chain Is “In Play”: Key Investment Themes | 37
SECULAR CHANGES ARE PERMANENTLY ALTERING THE (RE)INSURANCE INDUSTRY
The Insurance Value Chain Is “In Play”: Key Investment Themes | 38
TECHNOLOGY CHANGES THE COMPETITION
MULTI-LINE ERA
“SPECIALIST”START-UP
(RE)INSURERSDISRUPTIVE
DISTRIBUTION & NEW CAPITAL
SOURCES
TARIFF RATINGS
Minicomputer1965 - 1985
Micro P/C Era1985 - 2010
Cloud Computing, Big Data, Direct
Distribution, Sophisticated
Algorithms
Mainframe1950 - 1965
Pre-1950s
“Two Men, A Dog, A $1B & An A- Rating”
MGAs, Pension Funds, Hedge
Funds
The Insurance Value Chain Is “In Play”: Key Investment Themes | 39
GOOGLE … FRIEND OR FOE TO INSURERS?
Google Compare for Auto Insurance
Google Compare Up And Running In UK For 2+ Years
March 2015: Announces Launch Of Auto Insurance Comparison Site in CA
* Google Presentation May 2015
Google Compare isNOT
Becoming an Auto Insurer*
The Insurance Value Chain Is “In Play”: Key Investment Themes | 40
AUTONOMOUS CARS …THE FUTURE IS BECOMING CLEARER
The Insurance Value Chain Is “In Play”: Key Investment Themes | 41
PERSONAL AUTO: LARGEST INDIVIDUAL U.S. LINE
Per D&P Report “Path To Driverless Cars” (9/7/2013)
The Insurance Value Chain Is “In Play”: Key Investment Themes | 42
PROGRESSIVE THEN AND NOW
Founding CEO Peter Lewis Was The 1st To Point Out The Risk That Auto Insurance Might Ultimately Disappear.
“The biggest risk we face is the end of auto insurance…at some time in the future there will be so many fewer, less severe auto accidents that it will disappear.”
Founding CEO Peter Lewis (1998)
Progressive Puts “Homeowners” / ASI On The Balance Sheet
1998 2015
Future Progressive Year 20XX: Homeowners Premium > Auto Premium?
The Insurance Value Chain Is “In Play”: Key Investment Themes | 43
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• The Hartford’s Stealth Move With AARP• Ajit Jain Going Direct In Workers’ Comp
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
The Insurance Value Chain Is “In Play”: Key Investment Themes | 44
FOR U.S. COMMERCIAL UNDERWRITERS… WHERE DOES A DOLLAR GO?
* Composite of 127 Commercial Lines Predominating Groups Over Last 10 Years (2004-2013), Source: SNL Data, D&P Analysis
Pure Losses = 57¢Pure Losses = 57¢Loss Adj.Loss Adj.Expense Expense
14¢14¢
Commissions Commissions & Brokerage & Brokerage
10¢10¢
Profit Profit 1¢1¢
Salaries 9¢Salaries 9¢
Taxes = 3¢Taxes = 3¢
Other Other G&A 5¢G&A 5¢
i.e. Loss Ratio i.e. Expense Ratio
The Insurance Value Chain Is “In Play”: Key Investment Themes | 45
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• The Hartford’s Stealth Move With AARP• Ajit Jain Going Direct In Workers’ Comp
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
The Insurance Value Chain Is “In Play”: Key Investment Themes | 46
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• The Hartford’s Stealth Move With AARP• Ajit Jain Going Direct In Workers’ Comp
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
The Insurance Value Chain Is “In Play”: Key Investment Themes | 47
AMWINS: A GREAT EXAMPLE OF WHERE THE WORLD IS HEADED …
1) Partnered With Allianz Risk Transfer / Nephila… Exclusive “ETF” type arrangement between AmWINS and Allianz/Nephila for 10% of all “shared and layered” property business = should ~ $175M of premium.
2) Partnered With A Long-term Capital Provider… Completes strategic investment by Public Sector Pension (PSP) Investment Board = 20 year money.
3) Providing “Small Business” Flow… Two Sigma “rocket scientists” underwrite small business.
The largest U.S. wholesale broker with premium placements of $10B+ from 20K+ agents
The Insurance Value Chain Is “In Play”: Key Investment Themes | 48
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
The Insurance Value Chain Is “In Play”: Key Investment Themes | 49
(2011)
(2012) (2010) (2012)
(2015) (2010)
Year of Transaction
= Companies “Taken Out” / Merger of Equals
> $3B(2015)
SIZE MATTERS IN (RE)INSURANCE … 2010
The Insurance Value Chain Is “In Play”: Key Investment Themes | 50
SIZE MATTERS IN (RE)INSURANCE … 2015
< $3B
New Entrants
“New” Combinations
The Insurance Value Chain Is “In Play”: Key Investment Themes | 51
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
The Insurance Value Chain Is “In Play”: Key Investment Themes | 52
1) Lowest Number of Questions Asked Online
• Ability To Populate Data / Autofill = Reduces # of Qs
2) Largest # of Potential Customers / # of SIC Codes
3) Size of Account = Premium $s
4) Successful "Throughput" Of Underwriting W/O Human Intervention
5) Ability To Give Bindable vs. Indicative Quote
“DIRECT” BATTLE IN COMMERCIAL LINES WILL BE WAGED ON FIVE KEY METRICS ...
The Insurance Value Chain Is “In Play”: Key Investment Themes | 53
AARP: THE HARTFORD'S “TROJAN HORSE” INTO SMALL COMMERCIAL LINES?
“The Micro segment of Small Commercial is best served by a multichannel distribution strategy. We are aggressively moving in that direction with an AARP-endorsed offering and other initiatives that will bring increased simplicity and speed to small business owners and our distribution partners.
- Chris Swift CEO & Chairman The HartfordFebruary 3rd, 2015
The Insurance Value Chain Is “In Play”: Key Investment Themes | 54
AJIT GOES “DIRECT” IN COMMERCIAL LINES
The Insurance Value Chain Is “In Play”: Key Investment Themes | 55
A CASE STUDY: GEICO PREMIUM GROWTH
#2
#7
1993: Tony Nicely implemented a strategy to expand the customer base and increase advertising.
1996: Berkshire Hathaway purchased the remaining shares. Original purchase of ~1/3 of the co occurred in 1976-80, at a time when the company was recovering from near-bankruptcy.
Since then, the company has continued to successfullyexpand its advertising and its customer base.
Source: Dowling & Partners Analysis, Statutory Filings
The Insurance Value Chain Is “In Play”: Key Investment Themes | 56
AJIT GOES “DIRECT” IN COMMERCIAL LINES
Model With Least / Minimal Frictional Costs
Small Commercial Customer
Risk Assumed
Internet Based Platform
● Leverages Big Data● Pricing Algorithms● “Real Time” Bindable Quotes
Ajit’s Goals …● Fewer Than 20 Questions ● Save Customers An Average Discount of 20%● 80% “Throughput” Rate Of Customers
The Insurance Value Chain Is “In Play”: Key Investment Themes | 57
In The End … Content Is King & Capital Is A Commodity
WE ENVISION A WORLD WHERE …
• Intermediaries Go Direct To Capital (Both Traditional & Non-Traditional). “Facilities” Grow To 25-30% Of Many Lines Of Business
• AmWINS Deal With Nephila = A Game Changer
• Excess Traditional Reinsurance & Primary Capital• Hedge Fund & Pension Capital• Reinsurers Should Not Be Public Companies In New World
Q&A