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24th Annual Insurance Issues ConferenceMonday, November 30, 2015
Trends in insurance M&A - and FinTechdemystified
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Fundamentally, one side of the coin to the question: “do I build or do I buy?”, once the strategic decision has been made to…
Why undertake M&A?
Enter a new geographic market 1
Provide a new product and service 2Access a new distribution channel to reach customers 3
Equip operations with new tools 4
Capture new customers5
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Alternatively, it can be seen as defensive to …
Why undertake M&A?
Protect market position1Prevent challengers from offering products or services2
Restrict access to distribution channels to reach customers3
Avoid others from equipping their operations with tools4
Prevent others from capturing customers5
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Or, an opportunity for the deployment of capital …
Why undertake M&A?
To enhance investment returns1
To take advantage of arbitrage opportunities2To consolidate a market and create challengers to large incumbents3
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
4
For every buyer, there is a seller…
What about divestitures?
Facing the reality of suboptimal performance or being “stuck in the mud”1
Managing (regulatory) capital2
Passing on the reins of ownership3Encumbered by regulation and compliance costs4
Needing to fund a new/growing venture5
Simply taking advantage of peak pricing6
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Divorce is good for business
Sell side share price performance post deal
•On sell side,announcement of a separation results in a share price decrease of c.3%
•1 year after separation however, these organisations have seen a c.12% increase in share price.
Sell Side
Separated organisation share price performance post deal
•The share price of the separated organisation tends to fall by c.2% immediately after IPO
•However, 1 year after separation the organization benefits from c.13% increase in share price.
Buy Side
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The Global Perspective
Sustained number of transactions in insurance
229
271254 251
313
211
0
50
100
150
200
250
300
350
FY10 FY11 FY12 FY13 FY14 YTD-Aug-15
Source: KPMG analysis
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Includes as targets:■ Underwriters
■ Brokers/MGAsBased on information extracted from KPMG’s Financial Services M&A Digest January 2013 to August 2015
The Canadian Perspective
Sustained number of transactions in insurance
12 12 13 1311 11
15 14
19
26
10
0
5
10
15
20
25
30
Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15
■ Insurance services: loss adjustors / claims management
■ Employee / HR benefit distributors and servicers
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Notable transactions
Desjardins Group acquires State Farm Canada
CPPIB acquires Wilton Re
AJ Gallagher acquires Noraxis
Manulife acquires Standard Life Canada
Lussier Insurance acquires Dale Parizeau Morris McKenzie
Sun Life acquires Ryan Labs
Intact Financial acquires Canadian Direct Insurance
Co-operators acquires Premier Group
PSP acquires AmWYNS Group
Sun Life acquires BentallKennedy
Wilton Re acquires Transamerica Life
Canada
Q1 Q2 Q3 Q4 Q1 Q2
2014
2014
2014
2014 2015
2015
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Profile of buyer remains concentrated…
Underwriters:
■ Fairfax Holdings, mostly overseas
■ Intact Financial
Distributors:
■ Hub International
■ Arthur J. Gallagher
Private equity/Pension plan:
■ Canada Pension Plan Investment Board
■ PSP Investment Board
…but non-traditional buyer profiles are emerging
Based on information extracted from KPMG’s Financial Services M&A Digest January 2014 to August 2015
Private Equity/pension plan
5%
10%Service Provider37%
Underwriter
48%Distributor
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Underwriters:
■ 67% cross-border
■ Continued consolidation in Canada
– State Farm Canada
– Standard Life Canada
– Metro General Insurance
– Transamerica Life Canada
– Canadian Direct Insurance
Asset management:
■ Focus on the US
Profile of targets remains concentrated …
… heavily focused on distribution
Based on information extracted from KPMG’s Financial Services M&A Digest January 2014 to August 2015
Asset Management
4%
13%Service Provider
26%Underwriter
57%Distributor
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Matches made in heaven?
Profile of buyers Profile of targets
Distributor to distributor not necessarily the norm■ Underwriters beefing up distribution
■ Private equity/pension plan seizing opportunities in underwriting and distribution
■ Asset managers attractive to underwriters
■ Buyers and targets are mostly “traditional”
■ Transaction structures also remain “traditional” buy/sell
Asset Management
4%
13%Service Provider
26%Underwriter
57%Distributor
Private Equity/pension plan
5%
10%Service Provider37%
Underwriter
48%Distributor
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Significant transaction observations
Valuation remain solid
Sustainability of revenue
Predictability of cost base
Separation and integration
Tax matters
TAX
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Drivers and catalysts of Canadian M&A activity
…Yet, alliances and partnerships should not be discounted as future means of achieving the traditional goals of M&A
Succession planning01Investment capital to be deployed02Suboptimal market positioning and/or profitability03P&C demutualization rules04Wealth management 05
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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What is a/the future of [Canadian] insurance?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The current view
74%
26%
Lack internal core skillsto drive innovation
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Applying to the sector of…
What about “Insurance FinTech”?
Insurance Financial
Technology
…The fusion of …
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Capital raising in Global Insurance Fintech
130 336 214
685
2,406
23
38
53
71 73
0
10
20
30
40
50
60
70
80
-
500
1,000
1,500
2,000
2,500
3,000
FY11 FY12 FY13 FY14 YTD-Sept-15
Source: CBInsights
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Unicorns and Narwhals in Fintech
Unicorns and narwhals at Q2-15 – global
Source: Finovate
24 22
7 5 5
20
05
1015202530
Lending Payments Real estate Investing Insurance Other
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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FinTech in the insurance world today
Disaggregation Connections
Source: World Economic Forum – The Future of Financial Services, June 2015
Disaggregateddistribution
Sharingeconomy
Self-drivingcars
Third partycapital
Smarter,cheapersensors
Wearables
Internet-of-Things
Standardplatforms
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Our recommendation
Responses
Build Procure Partner Sell to / through Acquire
Internal Partnerships External
Capability
Build innovation capabilities e.g.
Agile
Procurement
Accessing a broaderrange of external
partners/providers
Business Model
New products and business model
opportunities
FinTechcustomers
Selling to or throughFinTech companies
Venturing
Equity stakes in highgrowth businesses
and acquisitions
Governance
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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The Final Word
Questions?
Georges PigeonPartner, Deal [email protected]
Tim PrincePartner, Deal [email protected]
David DowniePartner, Corporate [email protected]
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7868
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
