Peer Benchmarking: Bottom-Line Analysis for Specialty Insurance Nov, 2010
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Peer Benchmarking: Bottom-Line Analysis for Specialty Insurance Client • The client is a leading provider of Specialty insurance based outside the U.S.A., with a need for benchmarking similar companies in this space on bottom-line parameters, as a part of their overall U.S. entry strategy
Project Scope • Key objectives of the study were to identify key players in Specialty insurance in U.S. based on certain pre-determined parameters, and benchmark this peer group on a set of critical financial (bottom-line focused) parameters, and analyze the underlying reasons behind the observed performance
Sutherland’s Solution • SGS conducted extensive secondary research to identify a relevant peer group • SGS then developed a proprietary framework incorporating select financial and operational 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 and exclusive intelligence to the client with regards to the required bottom-line targets that they should aim at achieving, when/if they enter this highly competitive market
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Drivers of Net Income: Macro-level View Income Statement View and Key Items
Drivers of Net Income
+
Underwriting Profit
+
Investment Income
+
Reserve Development
Focus Areas
Source: SGS Research & Analysis www.sutherlandglobal.com Š 2010 Sutherland Global Services Š 2010 Inc.,Sutherland All rights reserved. Global Services Privileged Inc., and Allconfidential rights reserved. information Privileged of Sutherland and confidential Globalinformation Services Inc. of Sutherland Global Services Inc. 29 January 2013
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In 2009, profitability was mainly driven by investments and favorable reserve development; RLI stands out in terms of profitability amongst peers Pre-Tax Income Margin on Earned Premiums (excl. realized gains and interest/other expenses) * %, 2007-09
Pre-Tax Income broken down into (i) Investment Income (ii) Income from Fav Res Dev (iii) Underwriting Profit
• Income before tax, given the benign 2009 catastrophe season, has improved across the table for all the companies in 2009 after a tough FY 2008 • Investment income has formed the backbone of profitability –(constituting at least 50% of profitability); ‘Favorable reserve development’ has been the source of income during tough times for the peer set – 2008 and 2009 saw a phenomenal rise in prior year favorable losses, contributing to at least 60% of net income across all peers • Standing out from the group in terms of profitability is RLI, posting a net earnings of 31% even during the tough 2008 period. Though favorable reserve development can be attributed as a major reason for company’s profits, RLI has been consistently posting positive results for more than a decade • WR Berkley stands apart in its investment performance, driving Earnings upwards of 16% (avg) over the past 3 years. The company has one of the best investment leverage amongst its peers which has helped post good performances even during soft markets * Does not include realized gains, other income/ expenses, interest expenses Source: SGS Research & Analysis www.sutherlandglobal.com © 2010 Sutherland Global Services © 2010 Inc.,Sutherland All rights reserved. Global Services Privileged Inc., and Allconfidential rights reserved. information Privileged of Sutherland and confidential Globalinformation Services Inc. of Sutherland Global Services Inc. 29 January 2013
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Argo has been the only company amongst the selected peers to have performed well in terms of GWP growth during 2007-2009 period Annexure 8
GWP Growth Rates, 2007-09, $ mn 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
631
4,253
1,259
1,906
68.2%
-15.8%
-16.4% Alleghany Corp
WR Berkley
RLI
Argo
-14.6%
GWP in 2009 (mn $)
-19.2% Markel Corp
1,987
GWP Growth Rates, 2007- LTM*, % 1,653 50%
634
4,315
1,137
39.9%
1,957
LTM GWP (mn $)
40%
30% 20%
10% 0%
-10% -14.6% WR Berkley
RLI
Argo
-17.0% -24.5%
Markel Corp
-14.3%
-30%
Alleghany Corp
-20%
*Note: LTM (Last Twelve Months) period October 2009-September 2010 Source: Company Annual Report, and SGS Research & Analysis www.sutherlandglobal.com Š 2010 Sutherland Global Services Š 2010 Inc.,Sutherland All rights reserved. Global Services Privileged Inc., and Allconfidential rights reserved. information Privileged of Sutherland and confidential Globalinformation Services Inc. of Sutherland Global Services Inc. 29 January 2013
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Most of the selected peers have lost market share in E&S between 2007- 09 period; the contribution of E&S onto their product portfolio has also decreased Annexure 9
GWP by Segments, % 2008
2007 1.9%
3.4% 2.5%
3.1%
1.0%
2.0%
3.4% 1.9%
2.9%
2009
1.0%
2.0%
$5,053
2.3%
0.8%
$5,000
$5,000
$5,000
3.0% 2.0%
E&S Market Share%
$4,520 $4,253 $4,000
$mn
$mn
61.1% $3,000
$mn
$4,000
$4,000
61.5%
$3,000
$3,000
62.5%
$2,359 $2,213
$1,000
31.8%
0% 46.5%
$1,000
42.6%
21.7% 45.2% WR Berkely
Alleghany Corp
Markel Corp
Argo
RLI
WR Berkley
Markel Corp
Argo
Alleghany Corp Specialty
0% 52.9%
47.3%
$0
E&S
$681
49.0% 52.6%
53.5% $0
5.7%
16.8%
Others
* The numbers for Alleghany Corp represent Direct Written Premiums instead of Gross Written Premiums Source: Company Annual Report, and SGS Research & Analysis
33.6% 15.8%
4.1%
19.9%
$631
17.6%
0% 59.2%
45.4%
24.0% 50.5% 32.3%
50.5%
40.8%
$0
RLI
61.5%
23.1%
$739
16.0%
WR Berkely
63.6%
43.7% 25.5%
Alleghany Corp
55.8%
$1,987 $1,906 $1,259
Markel Corp
2.9% 35.6%
$1,507 3.3% 15.8% 33.0%
$2,000
Argo
14.7%
$1,341 $1,605 31.4%
RLI
$1,182 $1,000
$2,000
29.5%
$2,000
The collective E&S market share of the peer group reduced from 11.9 % to 10.1% between 2007 and 2009. Most of the companies preferred to lose volumes to margin, on the backdrop of new competition from standard players and pricing pressures
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In terms of operating efficiency, Argo’s peers have exhibited better results over the years – especially RLI and Alleghany in 2009 Annexure 10 Operating Efficiency (combined ratio)
2008
2009
LTM*
120% 100% Avg (LTM)- 92%
41.0%
35.7%
38.3%
41.2%
41.5%
37.8%
40.6%
37.8%
WR Berkley
41.0%
59.9% 45.3%
RLI
40.6%
55.4%
Alleghany Corp
36.6%
41.3%
Markel Corp
32.9%
63.1%
Argo
37.5%
61.4%
WR Berkley
60.3%
Alleghany Corp
52.0%
62.7%
Markel Corp
54.7%
46.7%
Argo
50.0%
WR Berkley
62.8%
RLI
64.3% 60%
RLI
80%
36.1%
36.5%
Markel Corp
20%
Argo
40% 48.0%
Alleghany Corp
0%
Expense Ratio
Loss Ratio
Alleghany – Combined Ratio
RLI – Combined Ratio 100.0%
80.0% 60.0% 40.0% 20.0%
7.8%
6.7%
8.1%
30.9%
32.9%
28.6% 35.1%
46.7%
41.3%
2007
2008
2009
0.0% Loss Ratio
Exp. Ratio - Policy Acquisition
100% 80% 60% 40% 20% 0%
3.4% 26.4% 46.1% 2007
3.8% 30.2%
3.2% 32.4%
60.1%
52.3%
2008
2009
Exp. Ratio - Policy Administrative *Note: LTM (Last Twelve Months) period October 2009 - September 2010 Source: Company Annual Report, and SGS Research & Analysis
Administration expense
Commision Expense
Loss Ratio
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WR Berkley’s exposure to cat losses is much lower compared to its peers and the industry Annexure 12 Ratio of Event Loss to Surplus for Largest Events Since 1989
Catastrophe Loss % on Total Report Loss, (2005 and 2008) 20%
50.0%
16.2% 40.0%
15%
13.8%
10.9%
30.0%
9.6%
10%
6.9%
6.2%
20.0% 4.3%
5% 3.3%
2.4%
10.0% 1.1%
0.6%
1.0%
0.9% 0.0%
2008 (Hurricane Ike, Gustav)
WRB
Industry Event Loss/Surplus
Financial Crisis as of 3/31/09
P&C Industry
6/30/05 Hurricane Katrina
2005 (Hurricane Katrina)
Markel
6/30/04 Florida Hurricanes
RLI
6/30/01 Sept. 11 Attacks
Argo
12/31/93 Northridge Earthquake
Alleghany
6/30/1992 Hurricane Andrew
0.0%
6/30/1989 Hurricane Hugo
0%
WRB Event Loss/Surplus
Source: Insurance Information Institute; WRB Investor Presentation, Company Annual Reports, SGS Research & Analysis www.sutherlandglobal.com © 2010 Sutherland Global Services © 2010 Inc.,Sutherland All rights reserved. Global Services Privileged Inc., and Allconfidential rights reserved. information Privileged of Sutherland and confidential Globalinformation Services Inc. of Sutherland Global Services Inc. 29 January 2013
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Thank You
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