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Value
Focus
© 2013 Mercer Capital // Data provided by SNL Financial 1
Insurance Industry
Third Quarter 2013
Equity Market Recap. Over the last 12 months, stock market performance for all segments of
the SNL insurance indices outperformed the S&P 500, led by the stocks of mortgage & financial
guaranty companies (+66%) and multi-line insurers (+52%). The outperformance continued in Q3
of 2013. Six of the nine segments exceeded the S&P 500’s 4.7% rise, led by title insurers (+12%),
insurance brokers (+9.5%), and multi-line carriers (+7.9%). On the eve of the launch of the insurance
marketplaces created by the Affordable Care Act, the SNL segment indices for managed care and
life & health were up 6.6% and 7.7%, respectively, for the quarter.
Valuation Multiples Drift Higher. For P&C underwriters, valuation multiples improved slightly,
increasing from a median price/book ratio of 1.0x in July 2013 to 1.1x at the end of September. L&H
companies saw modest improvement as well, with the median P/B for firms in the index moving from
0.69x to 0.87x. The median MVTC/EBITDA multiple for insurance brokers climbed to 11.9x, driven in
part by higher organic growth rates reported by several of the major public brokerages.
KeyTransactionsAmid Overall M&A Slowdown. M&A activity among underwriters and brokerages
continued to slow, relative to 2012 and 2011 levels. Despite the decrease in volume, several notable
transactions occurred in the third quarter. Hellman & Friedman’s $4.4 billion purchase of Hub
International was largest takeover of a U.S. insurance broker on record, according to Bloomberg.
Media reports suggest the transaction multiples on the Hub deal were approximately 3.7x revenue
and 11.0x EBITDA. Another prominent deal was Arthur J. Gallagher’s purchase of Bollinger Holdings
(the 21st largest insurance broker in the U.S. with revenues of approximately $100 million) for
$312 million. The implied multiples in the Bollinger transaction are roughly 3.1x revenue and 7.8x
EBITDA. Finally, Allstate exited the consumer segment served by independent life insurance
and annuity agencies with its sale of Lincoln Benefit Life to Resolution Holdings for $600 million
(estimated price to book multiple on the sale was 1.73x).
Successful P&C Reinsurer IPO. Shares of Third Point Re began trading on August 15, after the
company completed the first $100M+ IPO in the P&C insurance space since 2007, according to
SNL Financial. Third Point Re, a specialty P&C reinsurer affiliated with hedge fund manager Daniel
Loeb, priced its IPO at $12.50/share, closed at $13.06 on the first day of trading, and stood at $14.49
(+16%) on September 30.
© 2013 Mercer Capital // Data provided by SNL Financial 2
SNL Insurance Broker and Underwriter IndicesSNL Insurance Underwriter Segment Indices
Insurance Brokers: Median Valuation Multiples
as of September 30, 2013
SNL Underwriter Indices: Median Valuation Multiples
as of September 30, 2013
Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2013
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
220.0
9/28/1210/28/1211/28/1212/28/12
1/28/13
2/28/13
3/31/13
4/30/13
5/31/13
6/30/13
7/31/13
8/31/13
9/30/13
September28,2012=100
SNL Insurance Underwriter Segment Indices
S&P 500: 19.34% SNL Insurance Multiline: 52.16%
SNL Insurance L&H: 50.11% SNL Insurance P&C: 27.76%
SNL Reinsurance: 27.91% SNL Managed Care: 41.11%
SNL Title Insurer: 25.21% SNL Mortgage & Finl Guaranty: 65.94%
90.0
95.0
100.0
105.0
110.0
115.0
120.0
125.0
130.0
135.0
140.0
145.0
9/28/1210/28/1211/28/1212/28/12
1/28/13
2/28/13
3/31/13
4/30/13
5/31/13
6/30/13
7/31/13
8/31/13
9/30/13
September28,2012=100
SNL Insurance Broker and Underwriter Indices
SNL U.S. Insurance Broker: 33.62%
SNL U.S. Insurance Underwriter: 37.32%
S&P 500: 19.34%
No. of
Companies
Price
/ LTM
EPS”
Price
/ ‘13E
EPS
Price
/ ‘14E
EPS
Price /
Book
Price /
Tangible
Book
Dividend
Yield
Multiline 7 10.70 10.59 10.20 0.79 0.89 0.39%
Life and Health 24 10.12 11.11 9.54 0.87 1.00 0.25%
Property and Casualty 69 12.93 13.66 12.59 1.11 1.11 0.45%
Reinsurance 16 9.44 10.31 9.65 0.90 0.95 0.44%
Managed Care 11 13.90 13.02 11.59 1.76 2.67 0.00%
Title Insurance 4 9.77 14.54 13.91 1.19 1.78 0.30%
Mortgage and Fin. Guaranty 7 1.16 4.19 8.74 0.98 0.77 0.00%
No. of
Companies
Price/
LTM EPS
Price /
‘13E EPS
Price /
‘14E EPS
MTVC/
EBITDA
MTVC/
Revenue
Broker Median 5 22.31 17.42 16.08 11.71 2.52
Aon Corp. nm 21.99 15.82 14.32 12.11 2.34
Arthur J. Gallagher & Co. nm 24.32 19.84 16.92 14.05 2.52
Brown & Brown Inc. nm 22.63 21.12 18.34 11.71 4.00
Marsh & McLennan Companies nm 17.99 17.42 16.08 11.14 2.20
Willis Group Holdings Plc nm nm 15.71 14.44 nm 2.79
© 2013 Mercer Capital // Data provided by SNL Financial 3
Recent Transactions Underwriter Return Stratification by Asset Size
M&A Activity Recap: Insurance UnderwritersM&A Activity Recap: Insurance Brokers
Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2013
Assets <
$250 MM
Assets
$250 -
$500 MM
Assets
$500 MM
- $1 BN
Assets $1
- $2.5 BN
Assets
$2.5 -
$10 BN
Assets >
$10 BN
Quarter-to-Date 8.30% 17.17% -2.02% 6.22% 7.10% 5.76%
Year-to-Date 37.36% 43.62% 7.91% 18.26% 26.47% 32.91%
Last 12 Months 34.12% 47.48% 18.15% 24.33% 32.83% 37.80%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
AsofSeptember30,2013
Underwriter Return Stratification by Asset Size
Q1! Q2! Q3! Q4! YTD at 9/30!
2010! 21 ! 25 ! 23 ! 37 ! 69 !
2011! 27 ! 18 ! 35 ! 28 ! 80 !
2012! 19 ! 29 ! 25 ! 18 ! 73 !
2013! 22 ! 12 ! 14 ! 0 ! 48 !
0 !
20 !
40 !
60 !
80 !
100 !
NumberofTransactions!
M&A Activity Recap: Insurance Underwriters!
Q1! Q2! Q3! Q4! YTD at 9/30!
2010! 50 ! 45 ! 53 ! 77 ! 148 !
2011! 77 ! 59 ! 73 ! 83 ! 209 !
2012! 64 ! 71 ! 56 ! 135 ! 191 !
2013! 39 ! 37 ! 43 ! 0 ! 119 !
0 !
50 !
100 !
150 !
200 !
250 !
NumberofTransactions!
M&A Activity Recap: Insurance Brokers!
Largest Deals
Deal Info ($M)
Target LTM
Financials ($000s)
Deal Multiples
Announce
Date
Total Deal
Value
Debt
Assumed
Total
Assets
Revenue
Price /
Earnings
Price /
Book
Brokers
Arthur J. Gallagher & Co./
Bollinger Holdings, Inc.
8/12/13 312.0 n/a n/a n/a n/a n/a
Jardine Lloyd Thompson
Group Plc/ Reinsurance
brokerage business
9/20/13 250.0 n/a n/a 166,000 n/a n/a
Underwriters
American Family Mutual
Insurance Company/
9/4/13 616.0 n/a n/a n/a n/a n/a
Resolution Group/ Lincoln
Benefit Life Company
7/17/13 600.0 n/a 19,781,989 12,216 n/a 173.15
Mercer
Capital
Insurance Industry Services
Copyright © 2013 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.
•	 Reinsurance
•	 Captives and risk retention groups
•	 Ancillary
•	 Third-party administrators
•	 Claims adjusters and other service providers
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
•	 Underwriters
•	 P&C, life & health, and managed care
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.
Contact Us Lucas M. Parris, CFA, ASA
901.322.9784
parrisl@mercercapital.com
Travis W. Harms, CFA, CPA/ABV
901.322.9760
harmst@mercercapital.com
Mercer Capital
5100 Poplar Avenue, Suite 2600
Memphis, Tennessee 38137
901.685.2120 (P)
www.mercercapital.com

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Mercer Capital's Value Focus: Insurance Industry | Q3 2013

  • 1. Value Focus © 2013 Mercer Capital // Data provided by SNL Financial 1 Insurance Industry Third Quarter 2013 Equity Market Recap. Over the last 12 months, stock market performance for all segments of the SNL insurance indices outperformed the S&P 500, led by the stocks of mortgage & financial guaranty companies (+66%) and multi-line insurers (+52%). The outperformance continued in Q3 of 2013. Six of the nine segments exceeded the S&P 500’s 4.7% rise, led by title insurers (+12%), insurance brokers (+9.5%), and multi-line carriers (+7.9%). On the eve of the launch of the insurance marketplaces created by the Affordable Care Act, the SNL segment indices for managed care and life & health were up 6.6% and 7.7%, respectively, for the quarter. Valuation Multiples Drift Higher. For P&C underwriters, valuation multiples improved slightly, increasing from a median price/book ratio of 1.0x in July 2013 to 1.1x at the end of September. L&H companies saw modest improvement as well, with the median P/B for firms in the index moving from 0.69x to 0.87x. The median MVTC/EBITDA multiple for insurance brokers climbed to 11.9x, driven in part by higher organic growth rates reported by several of the major public brokerages. KeyTransactionsAmid Overall M&A Slowdown. M&A activity among underwriters and brokerages continued to slow, relative to 2012 and 2011 levels. Despite the decrease in volume, several notable transactions occurred in the third quarter. Hellman & Friedman’s $4.4 billion purchase of Hub International was largest takeover of a U.S. insurance broker on record, according to Bloomberg. Media reports suggest the transaction multiples on the Hub deal were approximately 3.7x revenue and 11.0x EBITDA. Another prominent deal was Arthur J. Gallagher’s purchase of Bollinger Holdings (the 21st largest insurance broker in the U.S. with revenues of approximately $100 million) for $312 million. The implied multiples in the Bollinger transaction are roughly 3.1x revenue and 7.8x EBITDA. Finally, Allstate exited the consumer segment served by independent life insurance and annuity agencies with its sale of Lincoln Benefit Life to Resolution Holdings for $600 million (estimated price to book multiple on the sale was 1.73x). Successful P&C Reinsurer IPO. Shares of Third Point Re began trading on August 15, after the company completed the first $100M+ IPO in the P&C insurance space since 2007, according to SNL Financial. Third Point Re, a specialty P&C reinsurer affiliated with hedge fund manager Daniel Loeb, priced its IPO at $12.50/share, closed at $13.06 on the first day of trading, and stood at $14.49 (+16%) on September 30.
  • 2. © 2013 Mercer Capital // Data provided by SNL Financial 2 SNL Insurance Broker and Underwriter IndicesSNL Insurance Underwriter Segment Indices Insurance Brokers: Median Valuation Multiples as of September 30, 2013 SNL Underwriter Indices: Median Valuation Multiples as of September 30, 2013 Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2013 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 220.0 9/28/1210/28/1211/28/1212/28/12 1/28/13 2/28/13 3/31/13 4/30/13 5/31/13 6/30/13 7/31/13 8/31/13 9/30/13 September28,2012=100 SNL Insurance Underwriter Segment Indices S&P 500: 19.34% SNL Insurance Multiline: 52.16% SNL Insurance L&H: 50.11% SNL Insurance P&C: 27.76% SNL Reinsurance: 27.91% SNL Managed Care: 41.11% SNL Title Insurer: 25.21% SNL Mortgage & Finl Guaranty: 65.94% 90.0 95.0 100.0 105.0 110.0 115.0 120.0 125.0 130.0 135.0 140.0 145.0 9/28/1210/28/1211/28/1212/28/12 1/28/13 2/28/13 3/31/13 4/30/13 5/31/13 6/30/13 7/31/13 8/31/13 9/30/13 September28,2012=100 SNL Insurance Broker and Underwriter Indices SNL U.S. Insurance Broker: 33.62% SNL U.S. Insurance Underwriter: 37.32% S&P 500: 19.34% No. of Companies Price / LTM EPS” Price / ‘13E EPS Price / ‘14E EPS Price / Book Price / Tangible Book Dividend Yield Multiline 7 10.70 10.59 10.20 0.79 0.89 0.39% Life and Health 24 10.12 11.11 9.54 0.87 1.00 0.25% Property and Casualty 69 12.93 13.66 12.59 1.11 1.11 0.45% Reinsurance 16 9.44 10.31 9.65 0.90 0.95 0.44% Managed Care 11 13.90 13.02 11.59 1.76 2.67 0.00% Title Insurance 4 9.77 14.54 13.91 1.19 1.78 0.30% Mortgage and Fin. Guaranty 7 1.16 4.19 8.74 0.98 0.77 0.00% No. of Companies Price/ LTM EPS Price / ‘13E EPS Price / ‘14E EPS MTVC/ EBITDA MTVC/ Revenue Broker Median 5 22.31 17.42 16.08 11.71 2.52 Aon Corp. nm 21.99 15.82 14.32 12.11 2.34 Arthur J. Gallagher & Co. nm 24.32 19.84 16.92 14.05 2.52 Brown & Brown Inc. nm 22.63 21.12 18.34 11.71 4.00 Marsh & McLennan Companies nm 17.99 17.42 16.08 11.14 2.20 Willis Group Holdings Plc nm nm 15.71 14.44 nm 2.79
  • 3. © 2013 Mercer Capital // Data provided by SNL Financial 3 Recent Transactions Underwriter Return Stratification by Asset Size M&A Activity Recap: Insurance UnderwritersM&A Activity Recap: Insurance Brokers Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2013 Assets < $250 MM Assets $250 - $500 MM Assets $500 MM - $1 BN Assets $1 - $2.5 BN Assets $2.5 - $10 BN Assets > $10 BN Quarter-to-Date 8.30% 17.17% -2.02% 6.22% 7.10% 5.76% Year-to-Date 37.36% 43.62% 7.91% 18.26% 26.47% 32.91% Last 12 Months 34.12% 47.48% 18.15% 24.33% 32.83% 37.80% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% AsofSeptember30,2013 Underwriter Return Stratification by Asset Size Q1! Q2! Q3! Q4! YTD at 9/30! 2010! 21 ! 25 ! 23 ! 37 ! 69 ! 2011! 27 ! 18 ! 35 ! 28 ! 80 ! 2012! 19 ! 29 ! 25 ! 18 ! 73 ! 2013! 22 ! 12 ! 14 ! 0 ! 48 ! 0 ! 20 ! 40 ! 60 ! 80 ! 100 ! NumberofTransactions! M&A Activity Recap: Insurance Underwriters! Q1! Q2! Q3! Q4! YTD at 9/30! 2010! 50 ! 45 ! 53 ! 77 ! 148 ! 2011! 77 ! 59 ! 73 ! 83 ! 209 ! 2012! 64 ! 71 ! 56 ! 135 ! 191 ! 2013! 39 ! 37 ! 43 ! 0 ! 119 ! 0 ! 50 ! 100 ! 150 ! 200 ! 250 ! NumberofTransactions! M&A Activity Recap: Insurance Brokers! Largest Deals Deal Info ($M) Target LTM Financials ($000s) Deal Multiples Announce Date Total Deal Value Debt Assumed Total Assets Revenue Price / Earnings Price / Book Brokers Arthur J. Gallagher & Co./ Bollinger Holdings, Inc. 8/12/13 312.0 n/a n/a n/a n/a n/a Jardine Lloyd Thompson Group Plc/ Reinsurance brokerage business 9/20/13 250.0 n/a n/a 166,000 n/a n/a Underwriters American Family Mutual Insurance Company/ 9/4/13 616.0 n/a n/a n/a n/a n/a Resolution Group/ Lincoln Benefit Life Company 7/17/13 600.0 n/a 19,781,989 12,216 n/a 173.15
  • 4. Mercer Capital Insurance Industry Services Copyright © 2013 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. • Reinsurance • Captives and risk retention groups • Ancillary • Third-party administrators • Claims adjusters and other service providers 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 • Underwriters • P&C, life & health, and managed care 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. Contact Us Lucas M. Parris, CFA, ASA 901.322.9784 parrisl@mercercapital.com Travis W. Harms, CFA, CPA/ABV 901.322.9760 harmst@mercercapital.com Mercer Capital 5100 Poplar Avenue, Suite 2600 Memphis, Tennessee 38137 901.685.2120 (P) www.mercercapital.com