Mergers and acquisitions in life insurance Neil Taverner 21 March 2002
WWW.WATSONWYATT.COM
Why do companies do M&A?
! ! ! ! ! ! !
economies of scale distribution IT diversification "big branding" Euro defence
2
The stages of an acquisition
Formulate Locate Investigate Negotiate Integrate
Pre-Deal (assessing, planning, forecasting value)
Deal (agreeing value)
Post-Deal (realising value)
3
Strategy
! ! ! !
M&A = vision - organic development Clarity of desired outcome essential Why do we want to do this deal? Alternatives to M&A – organic growth
– – –
niche (focused) players start ups partnerships
4
Is M&A an essential element of strategy?
! !
Doing M&As - NO (not necessarily) Thinking about them - YES – an opportunity to seize when appropriate?
– –
essential element of chosen strategy? a threat?
5
Investigation
!
Due diligence – review and validate initial figures
– – –
accuracy and credibility of data uncover "black holes" assess company, systems and staff
!
Valuation – traditional appraisal value – options, guarantees etc (fair value) – synergies, goodwill
6
The UK - M&A drivers in last ten years
! ! ! ! !
FSA (polarisation, best advice) Pensions mis-selling GAOs Stakeholder De-polarisation
!
Foreign entrants ("top 5" syndrome)
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The UK - effects
!
Consolidation, demutualisation – only strongest financially can survive
–
expense pressure
!
Distribution – banks started well with tied networks
–
hit by trend to independent advice
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Distribution
IFA
100% 80% 60% 40% 20% 0%
19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99
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Tied
Banks
Direct
The changing structure Top 25 groups by type
25 20 15 10 5
1990 1994 1998 1999 2000 Current UK proprietary Foreignowned Bankowned Mutuals
0
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The changing structure Market share of top 25 groups by type
100% 80% 60% 40% 20%
1990 1994 1998 1999 2000 Current UK proprietary Foreignowned Bankowned Mutuals
0%
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What next in the UK?
!
Smaller players – foreigners interested? – mergers amongst themselves? – vulture funds? Few larger independent players (possible targets?) Foreigners pulling out? More consolidation? Demutualisations? (not many left!)
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! ! ! !
France
! ! !
Dominated by bancassurers Mostly single premium savings business Pension provision mostly by PAYG semi-state bodies Non-bank insurers often composite No demutualisations
! !
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Distribution
Banks (*)
100% 80% 60% 40% 20% 0%
19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00
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Agents
Salesforces
Brokers
Direct
(*) Including Post Office
Recent M&A activity
! ! ! !
A few "mega-mergers" of domestics One bank consolidation Foreign entrants and consolidators Foreign leavers
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The changing structure Top 25 groups by type
25 20 15 10 5 0
French proprietary Foreignowned Bankowned Mutuals
1995
16
1997
1999
Current
The changing structure Market share of top 25 by type
100% 80% 60% 40% 20% 0%
French proprietary Foreignowned Bankowned Mutuals
1995
17
1997
1999
Current
What next?
! ! !
Waiting for pensions shift from PAYG Can banks hold on to their market share? Lots of small foreign-owned companies - what will they do? Only 2 French proprietary groups in top 25 - no targets for entry left
!
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Conclusions
! ! ! ! !
Importance of strategy Importance of local conditions Every market and every M&A is different Diversification across markets Actuarial involvement at all stages of M&As
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Mergers and acquisitions in life insurance Neil Taverner 21 March 2002
WWW.WATSONWYATT.COM