HCC Insurance — Merger or Acquisition (June 2015)
30 slides from HCC Insurance's merger presentation, Jun 10, 2015
Slide 1: Acquisition of HCC
Acquisition of HCC June 10, 2015 Significant international expansion by Tokio Marine Tokio Marine Holdings, Inc. President, Tsuyoshi Nagano
Slide 2: Additional Important Information About the Proposed Merger
Additional Important Information About the Proposed Merger and Where to Find It This communication relates to a proposed merger between HCC and a subsidiary of Tokio Marine Holdings, Inc. that will be the subject of a proxy statement that HCC intends to file with the U.S. Securities and Exchange Com
Slide 3: Discussion Topics
Discussion Topics Overview of the Transaction Key Strengths of HCC Strategic Rationale of the Transaction Appendices 3 1 2 3
Slide 4: Strategic Rationale and Key Strengths: Transaction Highlights
Strategic Rationale of the Transaction Key Strengths of HCC Transaction Highlights Establishment of a more solid Group business foundation, through capital efficiencies and sustainable profit growth Continued expansion of International business, which results in a more globally diversified portfolio
Slide 5: Overview of the Transaction
Overview of the Transaction 1 5
Slide 6: Transaction Structure and Key Terms
Transaction Structure Transaction Structure and Key Terms Acquisition of 100% of the outstanding shares of HCC by TMNF in cash Consideration $78.00 per HCC share / approximately $7.5 billion1 (JPY 940 billion2) total consideration 1.90x book value per share as of March 31, 2015 35.8% premium to HCC’
Slide 7: Key Strengths of HCC
2 Key Strengths of HCC QW roWomanne @HCC 7
Slide 8: Key Strengths of HCC
Key Strengths of HCC A World Leading Specialty Insurer Disciplined Growth and Best-in-Class Underwriting Profitability Diverse and Highly Profitable Portfolio Specialty businesses that require strong underwriting technical expertise Market leading positions in A&H, D&O, agriculture and other special
Slide 9: A World Leading Specialty Insurer
Pre-Tax Earnings (2014) North America P&C Accident & Health International Details of Key Segments A World Leading Specialty Insurer Company Overview Founded in 1974; listed on NYSE with a market cap of $5.5 billion (JPY 688 billion2) Headquartered in Houston, Texas with offices in the United States,
Slide 10: Diverse and Highly Profitable Portfolio
Over 100 classes of specialty insurance products which are largely non-correlated The vast majority of the lines of business are less dependent on the traditional P&C market cycles Limited exposure to natural catastrophe risks Diverse and Highly Profitable Portfolio After-Tax PML2 as % of Shareholde
Slide 11: History of Disciplined Growth
History of Disciplined Growth 11 Disciplined profit growth due to its consistent underwriting expertise and lowest expense ratio among its industry peers Total Historical Net Earnings Source: 10K reports of HCC and HCC management. CAGR: 11.1% $160m $192m $338m $392m $302m $354m $345m $255m $391m $40
Slide 12: Combined Ratio – HCC vs. Peers
Combined Ratio – HCC vs. Peers Best-in-Class Underwriting Profitability Source: HCC investor presentation. SEC filings. Peers reflect average for peer companies (AFG, Argo, Chubb, Markel, Navigators, Old Republic, RLI, Travelers and WRB). (2) Reflects average for three-year, five-year and ten-year r
Slide 13: 10-Year Average Combined Ratio and Variance vs. Peers
Comparison of 10-Year Average Combined Ratio and its Variance (Standard Deviation) with Peers Source: HCC investor presentation. Dowling & Partners; data through 12/31/14. Sustainable Profit Generation with Low Volatility HCC has one of the lowest average COR and the lowest volatility in COR over th
Slide 14: Superior Long Term Value Creation
Superior Long Term Value Creation Source: HCC investor presentation. Dowling & Partners; data through 12/31/14. Note: Total Value Creation is growth in tangible book value per share including dividends. Total Value Creation CAGR (2004-2014) 15-Year Total Value Creation: HCC ranks 1st (19%) 20-Year T
Slide 15: Strategic Rationale of the Transaction
Strategic Rationale of the Transaction 3 15
Slide 16: Continued Expansion of our International Businesses
2000 2007 2011 2015 Continued Expansion of our International Businesses Developed Footholds in Non-Japanese Business Established Material Presence in Lloyd's (UK) and the US Further Expansion in High Growth Markets (~2000) business development focused on Japanese clients Re- insurance P&C emerging m
Slide 17: Our Proven Track Record in M&A
Our Proven Track Record in M&A 2012 2013 2014 Group total adjusted EPS* Trend of adjusted EPS* 2011 ¥40 ¥ 212 ¥ 317 ¥423 ¥10 Significant Contribution to the Group’s Profit Growth through M&A Strategy and Smooth PMI Mar. 2008 Total adjusted EPS* of 3 companies * Group: adjusted net income per share 3
Slide 18: Establishment of a More Solid Group Business Foundation
18 Establishment of a More Solid Group Business Foundation Capital Efficiencies and Sustainable Profit Growth + (Post Acquisition) Tokio Marine Group’s Portfolio will be More Diversified Established a More Solid Group Business Foundation HCC’s Diversified Portfolio Tokio Marine Group’s Portfolio Com
Slide 19: Impact on Adjusted EPS and ROE
Establishment of a More Solid Group Business Foundation Post transaction, the proforma adjusted ROE will increase by 1.5% and EPS will improve by 12% Impact on Adjusted EPS Impact on Adjusted ROE * Adjusted basis: Adjusted Net Income includes amount of claims related to natural disasters is adjusted
Slide 20: Further Expansion of International Business
Further Expansion of International Business 20 The figures shown here are the simulated simple sum of the annual projection for TMHD’s FY2015 results and TMHD’s preliminary estimates for HCC’s 2015 calendar year results. We will disclose the financial impact of this Acquisition on Tokio Marine Group
Slide 21: Adjusted Earnings Growth of Past Acquisitions
Adjusted Earnings Growth of our Past Acquisitions (2014 vs. First Year after Acquisition) A Truly Global Insurer with Premier Specialty Franchises Note: (*)In 2012, Delphi’s profit was consolidated for half year only, so it is annualized for the calculation of the multiple. + Combining HCC with Toki
Slide 22: Expansion of our Product Offering and Capability
Insurer 2014 Market Share AIG 16.3% XL Group 9.8% Chubb 9.2% CNA Financial 6.7% HCC 5.1% Expansion of our Product Offering and Capability Insurer 2013 Market Share Cigna 14.5% HCC 7.6% Sun Life 6.9% United Health 6.9% Wellpoint 6.7% US Medical Stop-loss US D&O US Agriculture (MPCI) Source: MSL: Nati
Slide 23: Complementary Strengths to Create Long Term Synergies
Complementary Strengths to Create Long Term Synergies Leverage Tokio Marine’s Global Footprint Cross sell A&H, D&O and other specialty products to Tokio Marine’s existing clients, in both developed (including Japan) and emerging markets Leverage Delphi’s Investment Expertise Leverage Tokio Marine’s
Slide 24: Strategic Rationale: Transaction Highlights Summary
Strategic Rationale of the Transaction Key Strengths of HCC Transaction Highlights A world leading specialty insurer with strong underwriting capability Diversified and highly profitable portfolio Proven track record of disciplined growth and best-in-class underwriting profitability 24 Establishment
Slide 25: Appendices
Appendices QW roWomanne & HCC 2
Slide 26: HCC Historical Income Statement
(1) Expense, loss and combined ratios are revised to reflect a change in the basis of calculation in the first quarter of 2015. Appendix: Financial Statements HCC Historical Income Statement 26 ($ in millions) 2010 2011 2012 2013 2014 Q1 2015 Revenues Gross written premiums $2,579 $2,649 $2,784 $2,8
Slide 27: HCC Historical Balance Sheet
27 (1) Invested assets include total investments, cash and restricted cash. Appendix: Financial Statements HCC Historical Balance Sheet ($ in millions) 2010 2011 2012 2013 2014 Q1 2015 Assets Invested assets (1) $5,933 $6,384 $7,123 $6,903 $7,386 $7,328 Premium, claims and other receivables 636 689
Slide 28: HCC Asset Allocation (as of March 31, 2015)
28 Source: HCC investor presentation. Data as of 3/31/15. Appendix: HCC Asset Allocation (as of March 31, 2015) Munis MBS Corporate ABS Equity Short-Term Foreign Gov’t U.S. Gov’t 5％ 19％ 16％ 47％ 5％ 5％ 2％ 1％ Asset Allocation Fixed Maturity Securities Average Rating AA Average Duration 4.7 years Averag
Slide 29: Definition of Adjusted Net Income, Adjusted ROE
29 Appendix: Definition of Adjusted Net Income, Adjusted ROE Adjusted Net Income*1 Adjusted Net Income Net income (consolidated) *2 Provision for catastrophe loss reserves*3 Provision for contingency reserves*3 Provision for price fluctuation reserves*3 Gains or losses on sales or valuation of ALM*4
Slide 30: Investor Relations Contact
Investor Relations Contact For further information, please contact: Tokio Marine Holdings, Inc. Corporate Planning Dept. Corporate Communications and Investor Relations Group Shiro Sasaki Email: [email protected] URL: http://www.tokiomarinehd.com/en/ Tel: +81-3-3285-0350 30 Transcript of video ma
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