Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Merger or Acquisition (April 2009)
31 slides from Zurich Insurance's merger presentation, Apr 16, 2009
Slide 1: Acquisition of AIG's US Personal Auto Group
Acquisition of AIG’s US Personal Auto Group April 16, 2009
Slide 2: Disclaimer and cautionary statement
Disclaimer and cautionary statement THIS DOCUMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY TO THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA AND JAPAN. Important Note This communication does not constitute (i) an offering prospectus, and no
Slide 3: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 3
Slide 4: Overview – transaction
Overview – transaction Zurich and the Farmers Exchanges1 have agreed to purchase AIG’s US Personal Auto Group (PAG) for USD 1.9bn plus the assumption of USD 0.1bn of debt. PAG comprises 21st Century, including AIG Direct, and their auto independent agency business. At an attractive price: – Price-to
Slide 5: Overview – strategic rationale
Overview – strategic rationale For Farmers Exchanges The Farmers Exchanges to reach their strategic GWP target. This deal is a unique opportunity as it offers: a US direct platform, a scarce asset, in direct auto, the fastest growing distribution channel in the US personal lines market, and achieves
Slide 6: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 6
Slide 7: US Personal Lines market
US Personal Lines market Industry analysts forecast continued slow premium growth, based on slowing US economy (particularly auto and home sales) and increased competition. This supports continued industry consolidation in pursuit of economies of scale. Direct distribution companies (mono-lines) hav
Slide 8: The overall US P&C market is projected to flatten; direct channel growing
The overall US P&C market is projected to flatten. However, the direct channel is growing and may reach USD 37 billion by 2010. Online Auto Quotes* (USD millions) +15% The direct channel is the only channel +15% gaining market share among the +30% Y/Y % insurance shopper population. Change 32.4 Sign
Slide 9: Consumer online buying trends
Consumer online buying trends In 2008, 44% of buyers who bought insurance from a new insurer purchased it directly, 3 percent increase from 2007. Sales transactions processed entirely on the Web now account for 21% of all new customer insurance sales. Celent estimates that nearly 30% of auto insuran
Slide 10: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 10
Slide 11: AIG's US Personal Auto Group (PAG)
AIG’s US Personal Auto Group (PAG) Overview Financial Summary – Pro forma excl. PCG AIG’s US Personal Auto Group (PAG), a unit of the Personal in USD millions 2005 2006 2007 2008 Gross Premium Written 4'104 4'116 4'093 3'578 Lines Division, offers auto insurance countrywide. Net Premium Written 4'06
Slide 12: AIG's US Personal Auto Group: much more than just 21st Century
AIG’s US Personal Auto Group: much more than just 21st Century In September 2007, AIG bought the AIG Direct minority share it did not already own 21st Century 40% 32% in 21st Century (39%) for approx. USD 759m. Subsequently, 21st Century was integrated into AIG Personal Lines Agency Auto business, w
Slide 13: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 13
Slide 14: Strategic rationale
Strategic rationale The acquisition is a “Game Changing Move” for Farmers Unique opportunity to acquire scarce asset – direct platform – and achieve immediate scale in fastest-growing channel #3 in US traditional direct channel No alternative assets exist Investment in organic growth estimated at 10
Slide 15: PAG helps build out Farmers' footprint
PAG helps build out Farmers’ footprint 2007 DWP, All-lines (in USD millions) Product Mix Shift to Auto Geography Mix Shift to East Farmers + Farmers + Farmers PAG Farmers PAG Auto 55.5% 64.4% West 82.3% 77.0% Home 27.4% 22.0% East 17.7% 23.0% Other 17.1% 13.6% Total 100% 100% 827 / 889 Total 100% 10
Slide 16: Customer preferences are creating challenges for agent-based and direct sellers
While customers still value an agent & bundled products, their changing preferences are creating challenges for both Agent Based and Direct sellers As a result competitors are converging towards a hybrid distribution model Number of customers Number of customers who want an agent* that bundle produc
Slide 17: PAG and Farmers integrated multi-channel distribution strategy
PAG and Farmers integrated multi-channel distribution strategy mitigates channel conflict by creating & optimizing agency growth opportunities PAG direct benefits for Exclusive Agents (EA) “Large multi-channel Expanded “customer reach” with access to distribution footprint the direct customer segmen
Slide 18: Farmers has a demonstrated track record of post-M&A integration and growth
Farmers has a demonstrated track record of effective post-M&A integration and growth Foremost Over the last 10 years Farmers has 2.6x Growth Since Joining Farmers successfully integrated two major Written Premiums 1999-2008 (in USD millions) 1'800 acquisitions: 1'600 1'400 Foremost Insurance (specia
Slide 19: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 19
Slide 20: Transaction framework
Transaction framework Step 1: Transfer of shares, renewal rights, reinsurance and portfolio assumption from seller to Farmers Group, Inc. (FGI) Acquisition of 29 entities conducting AIG’s US Personal Auto Group business (Target Companies) plus the assumption of a USD 100m senior note of 21st Century
Slide 21: Deal structure and financing – USD 1.1bn equity and USD 0.4bn hybrid security
Deal structure and financing – USD 1.1bn equity and USD 0.4bn hybrid security M&A transaction Financing transaction USD 1.1bn* cash Transfer of PAG(1) Accelerated ZFS book build USD 1.1bn* USD 0.4bn hybrid(1) Seller FGI USD 1.1bn* in shares USD 1.5bn cash (1) cash injection ZIC USD 0.4bn cash USD 0.
Slide 22: Deal structure and financing – financial impact on Zurich
Deal structure and financing – financial impact on Zurich M&A transaction impact: The intangible assets acquired amount to approximately USD 0.5bn, of which IFRS goodwill amounts to approximately USD 0.4bn. Reinsurance transaction impact: The additional RBC capital requirement at the Group level is
Slide 23: Financial impact – valuation estimates
Financial impact – valuation estimates At purchase price USD 1.9bn Valuation multiples of total deal as of Dec. 31, 2008 US GAAP equity USD 2.2bn 0.85x Tangible US GAAP equity1 USD 1.9bn 1.0x Valuation metrics for Zurich2 EPS accretion expected in year 1 Price-to-earnings multiple approx. 7x Interna
Slide 24: Impact on regulatory and economic solvency
Impact on regulatory and economic solvency Before PAG After PAG Financing After PAG and in USD billions, PAG as of impact impact Financing approximated and rounded Jan. 1, 09 (pro-forma) Economic financial strength1 - AFR 27 -0.5 26.5 1.5 28.0 - RBC 28 0.9 28.9 28.9 - Economic solvency 95% 96% Group
Slide 25: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 25
Slide 26: Summary – a unique and "Game Changing" opportunity at an attractive price
Summary – AIG’s US Personal Auto Group provides a unique and “Game Changing” opportunity at an attractive price Direct channel is the fastest growing channel for US motor business and is forecasted to reach USD 37bn by 2010. PAG immediately expands Farmers customer reach to include the fastest growi
Slide 27: Index
Index Overview US personal lines market AIG’s US Personal Auto Group (PAG) Strategic rationale and track record Transaction details and financing Summary Appendix © Zurich Financial Services April 16, 2009 Acquisition of AIG's US Personal Auto Group 27
Slide 28: Farmers' unique structure has created a history of reliable and steady earnings growth
Farmers’ unique structure has created a history of reliable and steady earnings growth… US P&C Industry Income2 Farmers Management Services Underlying Business Operating Profit in USD billions in USD millions 90 1'400 80 70 1'200 60 1'000 50 40 800 30 600 20 10 400 0 -10 200 -20 0 1985 1987 1989 199
Slide 29: Farmers unique structure
Farmers1 unique structure … as it insulates management company earnings from volatility of underwriting results. This structure is also unique when compared to the industry. Simplified Structure & Premium Distribution Illustrative example 100 Premiums 100 Premium 70 Losses & LAE 70 Adjusted Reported
Slide 30: Farmers continues to outperform, with reliable and steady earnings growth
Farmers also continues to outperform creating a history of reliable and steady earnings growth Growth vs. GAAP Combined Ratio1,6 Growth NPW % Industry4 September 2008 8.0 104.0% FY08 Industry Estimate Continue to out- GEICO5 Farmers2,3 perform the industry 4.0 Over 11 consecutive quarters of profita
Slide 31: Already a market leader in core states with expansion plans
Already a market leader in core states… with geographic and channel expansion plans to be a leading player nationally 0.5% market share Farmers All Lines Market Share (ECIA1 states) Large distribution footprint Broad product portfolio 9.6% market share With geographic & (core states) channel expansi
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