Identifying Top 20 Prospects in Non-Life & Life Insurance Industry

Identifying Top 20 Prospects in NonLife & Life Insurance Industry January, 2012

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Top 20 Prospects in Non-Life & Life Insurance Industry, for an IT Outsourcing client Client • The client is a leading provider of IT services based out of the U.S. for insurance vertical, was looking at developing a market expansion strategy, and thereby seeking a list of prospective customers in insurance for IT outsourcing

Project Scope • Key objectives of the study were to: o Understand the U.S. insurance industry and create a list of top 200 P&C and Life Insurance Companies o Understand key macroeconomic indicators for the insurance industry o Identify top players in the insurance industry in U.S., and compare them on the basis of financial performance

Sutherland’s Solution • SGS conducted detailed secondary research to size the insurance industry in U.S.  created a list of top 40 to 50 Life and P&C Insurance companies, identified list of top-line and bottom-line drivers specific to the industry and created a list of top 20 prospective customers in insurance for IT outsourcing on the basis of weighted rank • SGS then developed a proprietary framework incorporating select financial and operating parameters. The financial data of the chosen insurance players was put through this framework in order to arrive at the comparative assessment of the player vis-à-vis the industry as well as vis-à-vis other players • All financial and qualitative databases to which SGS holds subscription, were extensively used to identify key players in the insurance industry across U.S. as well as to collate the financial information for them

• Benefits to the Client • The project provided significant intelligence to the client with regards to the insurance industry in U.S., major players in insurance industry, which proved instrumental in developing a detailed course of action for market expansion o The project was instrumental in giving the client strategic insights about these 20 prospects, so that they could decide if they wanted to get a deeper analysis done for the same

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Methodology Adopted for Indentifying Top 20 Prospects (1/2)

1

Procure list of Top 200 P&C and Life Insurance Companies, on the basis of Net Earned Premiums

2

Create a list of Top 40 to 50 Life and P&C Insurance companies on the basis of Net Earned Premiums, and availability of Data (Listed Companies)

3

Identify List of Top-line and Bottom-line drivers specific to the industry, and get the relevant data for a selected time period

4

Calculate minimum, maximum and median values, so as to assign weightage and define ranges for all the defined parameters

5

Calculate ranks for each of the parameters according to the ranges defined â&#x20AC;&#x201C; For each company

6

Calculate weighted score by multiplying rank and weight assigned to each of the parameters

7

Get the list of top 20 companies based on weighted ranks

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Parameters used for Short-listing Top 20 Prospects – P&C Insurance

Parameters & Rationale for assigning scores

weights Net Earned Premiums

 This parameter is to ensure that companies which are too small or too big are given lesser priority as compared to mid-large sized companies

10%

Investment Yield

 Companies with lower yields as compared to peers are given higher scores, since these companies are not performing as well as they can perform. Since investment income & investment yield are important drivers of top an bottom line, weightage given is high

15%

Expense Ratio

 Companies with higher Expense Ratios as compared to peers have been considered more attractive for pursuing. Moreover, since this component is very critical from an outsourcing perspective, it is given the highest weightage

20%

Operating

EBITDA Profit Margin

 Companies with lower Operating Profit Margin as compared to peers have been considered more attractive for pursuing 10%  Companies with lower Return on Equity as compared to peers have been considered more attractive for pursuing

10%

Loss Ratio

 Companies with higher loss ratios have been given higher scores, since this can provide an opportunity to offer Claims Management solutions. However, weightage given to this parameter is low because of its comparative importance

5%

Net Earned Premiums CAGR

 This parameter is used to gauge if a company’s performance is getting better or worse over the past few years. However, there can be uncontrollable reasons behind this, and hence the weightage is low

5%

Expense Ratio Variance

 While some companies may have marginally lower Expense Ratios as compare to some peers, if this ratio has increased significantly over the past few years, it is a matter of critical concern for management

15%

Operating Profit Margin Variance

 This parameter is used to gauge if a company’s Operating Margin is getting better or worse over the past few years

10%

Return on DataEquity

Subscribers Data Subscribers

Players Selected for evaluation Markel Corporation Allied World Assur

Alleghany Ins Holdings

Selective Ins

White Mountains Ins Group

Mercury Gen

RenaissanceRe US Axis Ins

CNA Ins Cos Endurance Specialty

Hartford Ins

W.R. Berkley

Kemper Corp

Allstate Ins

Baldwin & Lyons Tower Group Companies

Navigators Ins

XL America

EMC Ins Cos

Arch Capital

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Parameters used for Short-listing Top 20 Prospects – Life Insurance

Parameters & Rationale for assigning scores

weights Net Earned Premiums

 This parameter is to ensure that companies which are too small or too big are given lesser priority as compared to mid-large sized companies

10%

Investment Yield

 Companies with lower yields as compared to peers are given higher scores, since these companies are not performing as well as they can perform. Since investment income & investment yield are important drivers of top an bottom line, weightage given is high

17.5%

Return on Equity

 Companies with lower Return on Equity as compared to peers have been considered more attractive for pursuing

10%

 Companies with higher SG&A expenses (as % of sales) have been considered more attractive for pursuing. However, since SG&A gets covered in overall Operating Expenses (as % of Sales), the weightage given is less. But this parameter is chosen to understand the stand-alone contribution of SG&A to expenses

7.5%

SGA (as % of EBITDA Sales) Operating Expense (as % Data of Sales)

 Companies with higher Operating Expenses (as % of Sales) as compared to peers have been considered more attractive for pursuing. This parameter is given critical weightage considering its relevance to outsourcing 20%

Net Earned Premiums DataCAGR

 This parameter is used to gauge if a company’s performance is getting better or worse over the past few years. However, there can be uncontrollable reasons behind this, and hence the weightage is low

10%

Operating Profit Margin Variance

 This parameter is used to gauge if a company’s Operating Margin is improving or declining over the past few years

15%

ROE Variance

 This parameter is used to gauge if a company’s Return on Equity is getting better or worse over the past few years

10%

Subscribers

Players Selected for evaluation Assurant Inc

Genworth FinI

Hadeysville Life Ins

Security NatI Life

Phoenix Life

Fidelity Investments

Universal Amer Corp

Health Net Life Ins

Manulife FinI

Amer Natl

Amer Family Life lns

Cincinnati Life lns

HCC lns

Aiistate Fini

Symeira Life

Lincoln Finl

Independence HIdg

Zurich Amer Life lns

Investors Heritage Life Ins Metropolitan Life & Affiliated Cos

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Process for Top 20 Prospects for Life Insurance

Companies which will be considered for profiling â&#x20AC;&#x201C; Top 20 Companies Companies which might not be considered for profiling, because of specific issues NOTE: Some companies have gotten filtered out of the Top 20 list, because of very limited availability of data for comparative purposes. Some companies have been ranked on limited data availability. While conducting detailed research of the shortlisted 20 companies, if some companies are found to be not suitable prospects, then they will be replace by the next ranked company from the Top 50 list Source: Bloomberg; Thomson Reuters, SGS Analysis

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Process for Top 20 Prospects For P&C Insurance

Companies which will be considered for profiling â&#x20AC;&#x201C; Top 20 Companies Companies which might not be considered for profiling, because of specific issues NOTE: Some companies have gotten filtered out of the Top 20 list, because of very limited availability of data for comparative purposes. Some companies have been ranked on limited data availability. While conducting detailed research of the shortlisted 20 companies, if some companies are found to be not suitable prospects, then they will be replace by the next ranked company from the Top 50 list Source: Bloomberg; Thomson Reuters, SGS Analysis

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Thank You.

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