Table of Contents. Insurance M&A The Changing Landscape. Insurance Conference. Grace Vandecruze, CPA, MBA 9/13/2016. A. State of the Market

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1 Insurance M&A The Changing Landscape Insurance Conference Grace Vandecruze, CPA, MBA September 19, 2016 Table of Contents A. State of the Market Regulatory Uncertainty Equity Market Valuations Competitive Landscape B. M&A Transactions & Themes C. Outlook & Predictions 2 1

2 State of the Market State of the Market The year 2016 ushered in a calm after a storm of insurance M&A deals in The overhang of near-zero interest rates, increased regulation and low organic growth continue to weigh heavily on the industry. Therefore, the wave of M&A is bound to return as foreign buyers expand on the shores of the U.S. and financial buyers sit on an abundance of capital. This presentation examines The Changing Landscape of U.S. Insurance M&A, with a focus on P&C, Life and Health sectors. 4 2

State of the Market Headwinds Prolonged Low Interest Rate Environment Regulatory Uncertainty Geopolitical Risk Low Equity Market Valuations Anemic Economic Recovery Post-Crisis Risk Aversion

3 State of the Market Headwinds Prolonged Low Interest Rate Environment Regulatory Uncertainty Geopolitical Risk Low Equity Market Valuations Anemic Economic Recovery Post-Crisis Risk Aversion Shareholder Activism VS. Tailwinds Competitive Landscape Higher Growth Rates in Emerging Markets Strong Cash Positions/Excess Capital Foreign Buyers Private Equity Buyers 5 Prolonged Low Interest Rates- Over $3.8 Trillion of Investments 6 3

4 Prolonged Low Interest Rates- Impact on the Industry 7 State of the Market - Regulatory Uncertainty 8 4

5 State of the Market Low Equity Valuations P/BV Multiples 3.50 Averages 10Y 5Y 1Y Current U.S. L&H Insurers 1.20x 0.98x 0.97x 0.89x U.S. P&C Insurers 1.28x 1.25x 1.30x 1.30x U.S. Reinsurers 1.08x 0.94x 1.00x 0.98x U.S. Managed Care 2.03x 2.18x 2.85x 2.80x 3.00 Price/Book Source: SNL Financial Database SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care 9 State of the Market Low Equity Valuations P/E Multiples Averages 10Y 5Y 1Y Current U.S. L&H Insurers 12.41x 10.67x 11.50x 11.45x U.S. P&C Insurers 13.71x 14.81x 16.15x 18.67x U.S. Reinsurers 12.12x 12.02x 15.12x 20.83x U.S. Managed Care 13.34x 15.29x 21.14x 16.97x Price/EPS Source: SNL Financial Database SNL U.S. Insurance L&H SNL U.S. Insurance P&C SNL U.S. Reinsurance SNL U.S. Managed Care 10 5

Competitive Landscape U.S. P&C Companies 2005 NWP: $426.8B Capital & Surplus: $432.3B 2,757 companies 2015 NWP: $584.2B Capital & Surplus: $680.

Financial Database Travelers Farmers Nationwide Progressive All Others 5 State Farm 10% AIG Farmers Allstate Berkshire Liberty Travelers Progressive

6 Competitive Landscape U.S. P&C Companies 2005 NWP: $426.8B Capital & Surplus: $432.3B 2,757 companies 2015 NWP: $584.2B Capital & Surplus: $680.8B 2,671 companies All Others 5 State Farm 10% AIG 6% Allstate 6% Liberty Berkshire Zurich Company has an announced M&A transaction Source: SNL Financial Database Travelers Farmers Nationwide Progressive All Others 5 State Farm 10% AIG Farmers Allstate Berkshire Liberty Travelers Progressive Chubb Nationwide 11 Competitive Landscape U.S. Life Companies 2005 NWP: $521.1B Capital & Surplus: $244.2B 961 companies 2015 NWP: $623.6B Capital & Surplus: $366.9B 741 companies MetLife 1 Prudential 7% MetLife 9% Northwestern 6% All Others 4 Lincoln National Principal AIG Voya AEGON Hartford New York Life Manulife All Others 5 Securian 2% State Farm New York Life 6% Prudential 6% Lincoln National Mass Mutual Manulife AEGON Source: SNL Financial Database 6

7 Competitive Landscape U.S. Health Companies 2005 NWP: $269.8B Capital & Surplus: $ 60.4B 893 companies 2014 NWP: $526.9B Capital & Surplus: $143.0B 1,060 companies UnitedHealth 12% UnitedHealth 10% Anthem Inc 11% Anthem 10% Kaiser 2% All Others 48% EmblemHealth BCBS MI Aetna 7% HlthCare Svc Corp Independence Health Humana Highmark All Others 51% WellCare 2% Kaiser 2% Humana 9% HlthCare Svc Corp Aetna Centene Independence Highmark Health 2% 2% Company has an announced M&A transaction Source: SNL Financial Database Competitive Landscape Global Life Insurers Top 10 Global Companies in 2000 by Market Cap ($ in billions) Top 10 Global Companies in 2014 by Market Cap ($ in billions) AEGON $59.5 China Life $81.5 Ageas $40.2 AIA $66.1 Prudential Plc $38.4 Metlife $62.9 Aviva $21.1 Ping An $62.6 Metlife* $19.0 AXA $61.8 Prudential Financial* $13.9 Prudential Plc $59.6 Legal & General Group $13.9 Prudential Financial $42.8 AFLAC $12.6 ManuLife $38.1 Hartford $10.5 China Pacific $34.7 Alleanza Association $10.3 Generali $33.2 Americas Europe Asia Source: Goldman Sachs Research; *Market Cap estimated at 1.5x surplus; 2014 Statista.com; 14 7

8 M&A Transactions & Themes M&A Transactions & Themes Small, Bolt-on Transactions AIG/Distress Sales P/E, Specialty Focused Transformational/ Scale Focused Deal value ($B) No. of deals Property & Casualty Life & Health Managed Care Multiline Total deals Source: SNL Financial Database; 2016YTD through September 4,

9 M&A Transactions & Themes 20.0 Life Insurance M&A Sumitomo/Symetra $3.7 Deal Value ($B) Aegon/Merrill Lynch Life $1.3 ACE/Combined Ins. $2.4 Aviva/AmerUS $2.7 InvGrp/ScottishRE $0.6 PL/Chase $0.9 $5.5 $5.0 SwissRe/New CA $0.5 $1.2 $0.5 $17.5 MET/DELA & ALICO (AIG subs) $15.5 Fairfax/Zenith $1.4 Athene/Liberty (RBC) $0.6 PL/MONY $1.0 SCOR/Generali s US $0.9 $5.5 GAFG/Forethought $0.7 SCOR/Trans. RE $0.9 Resolution/Lincoln $0.6 Harbinger/Old Mutual $0.4 $3.7 Guggenheim/EquiTrust $0.4 $1.1 DE Life/US Annuity $1.4 PRU/Hartford Life $0.6 Athene/Aviva $1.5 Athene/Presidential $0.4 CPPI/Wilton Re $1.8 GreyCastle/SAC $0.7 CPPI/TransAm $0.5 Manulife/Std Life $ $13.5 Dai ich Life/PL $5.6 $12.3 $5.0 Meiji/Stancorp $5.0 $0.2 Strategic transactions are noted in blue; Financial transactions are noted in red Source: SNL Financial Database; 2016YTD through September 4, M&A Transactions & Themes P&C Insurance M&A Liberty/Safeco $6.2 Tokio Marine/ PA Con. $4.7 Exor/PartnerRe $6.6 Fosun/Ironshore $2.1 CM/Sirius $2.2 Endurance/Montpelier $1.4 $53.0 Validus/Western World $0.7 TPG/Waranty Gp $1.2 Wright Ins/B&B $0.6 Deal Value ($B) Catlin/Wellington $1.1 QBE/Preatoria $0.8 Liberty/OH Casualty $2.7 Mapre/Com. $2.3 QBE/WintherthurUS $1.2 Munich Re/Midland $1.3 $11.6 $15.9 Zurich/21 st Century $1.9 Farmers/AIG auto $1.9 Validus/IPC $1.7 Fairfax/Odyssey Re. $1.0 ACE/Rain&Hail $1.0 Fairfax/Zenith $1.3 Alleghany/Transatlantic $3.5 Allstate/White Mt $1.0 Nationwide/Harleysville $0.8 QBE/Balboa $0.7 Travelers/Dom. of Canada $1.1 Dupperreault Grp/SAC Re $0.6 American Family/Homesite. $0.6 Enstar&Stone Pt/Torus $ $6.4 $7.4 $6.8 $7.8 $4.6 $4.6 $2.0 $ Strategic transactions are noted in blue; Financial transactions are noted in red Source: SNL Financial Database; 2016YTD through September 4, 2016 Tokio Marine/HCC $7.4 ACE/Chubb $

Selected M&A Transactions Source: SNL Financial Database 19 M&A Transactions & Themes Private Equity Buyers in M&A Transactions Private Equity backed M&A Deals Deal Value ($B) 6.0 5.0 4.0 3.0 2.0 1.

10 Selected M&A Transactions Source: SNL Financial Database 19 M&A Transactions & Themes Private Equity Buyers in M&A Transactions Private Equity backed M&A Deals Deal Value ($B) % 28% 16% 1 10% 8% 8% 1% Property & Casualty Managed Care Life & Health PE deals % 30% 2 20% 1 10% 0% % of P&C, Managed Care and L&H deals to total PE deals Source: SNL Financial Database; 2016YTD through September 4,

11 M&A Transactions & Themes Private Equity Dominates Significant dry powder with PE firms will propel M&A forward Could serve as a catalyst for higher premiums Clarification of regulatory rules for PE buyers viewed as a positive Increase in Cross Border Transactions Overseas players interested in establishing U.S. beachhead in niche businesses Strong interest in foreign buyers seeking entry into the U.S. Retrenchment from U.S. by European insurers due to Solvency II requirements Chasing GDP growth by North American/European insurers in Asia/Latin America Niche Focused/ Specialty Acquisitions Focus on accretive use of capital/blot-on acquisitions to offset lack of organic growth prospects and unattractive pricing dynamics in many sectors Commoditized franchises are cautiously looking for differential niche acquisitions Renewed focus on core competencies by shedding peripheral businesses 21 M&A Transactions & Themes Limited number of Large Strategic Deals The largest strategic deals in the last 10 years were an AIG-related transaction (Met/ ALICO-$15.5B) and ACE/Chubb-$28.2B Regulatory concerns over non-bank SIFI will limit large, strategic transactions among the top life insurers Low Valuation/ Regulatory Uncertainty Low valuations with little catalyst for stock price performances remain a significant obstacle to consolidation even in overcrowded, highly-fragmented sectors Continued regulatory overhang as industry deals with the explosion of regulatory requirements and authorities Cash is King Cash will continue to be the currency of choice, driven by significantly improved balance sheets with excess capital 22 11

12 Outlook & Predictions 23 Outlook & Predictions Market Segmentation / More Focused Business Models Focus of major players on being either one of globalization, domestic dominance or regional / niche markets Continued rationalization of non-core / subscale businesses Regulatory Uncertainty will persist Convergence of global solvency standards What role will the U.S. regulatory position play? The Fed s influence over the insurance industry will continue 24 12

13 Outlook & Predictions Foreign Buyers and Private Equity Firms will continue to dominate Capital Management Recalibration of ROE targets Continued regulatory and rating pressures Interest rates continue to stay low or even go negative Investment in Growth Market 25 Closing Remarks In the aftermath of the financial crisis, the character of Insurance M&A has changed from small, bolt-on transactions to large, transformational deals. The industry is in the midst of transition while regulatory capital rules are being redefined. Expect a wave of strategic transactions along with cross-border and private equity deals to continue

Thank you Contact Information Grace Vandecruze Managing Director Grace Global Capital LLC 477 Madison Avenue, 6 th Floor New York, NY 10022 Phone: 917-501-3565 gv@graceglobalcapital.com www.

14 Thank you Contact Information Grace Vandecruze Managing Director Grace Global Capital LLC 477 Madison Avenue, 6 th Floor New York, NY Phone: gv@graceglobalcapital.com Grace Vandecruze is the Founder and Managing Director of Grace Global Capital LLC, a consulting firm providing financial advisory, restructuring, valuation and capital-raising services to insurance regulators and companies since She advised the Attorney General in Delaware on the Highmark affiliation with Blue Cross Blue Shield of Delaware. In addition, she has served as financial advisor to Insurance Commissioners in several states including New Jersey, Indiana, Maryland and North Carolina. She was a Managing Director at Swiss Re and was responsible for the firm's regulatory advisory practice in the insurance and financial services industries. She has extensive expertise in mergers and acquisitions and capital raisings, and most notably she provided expert testimony on the valuation of Conseco during the largest bankruptcy in the insurance industry. Prior to joining Swiss Re, she was a Vice President at a private equity firm specializing in the insurance industry and an Associate in the Financial Institutions Group at Merrill Lynch. She earned an MBA in Finance from The Wharton School at the University of Pennsylvania in 1994 and a BBA in Accounting from Pace University in Before attending The Wharton School, she was an auditor for six years at Ernst & Young and Grant Thornton. She is a Certified Public Accountant. She is also a licensed sailor and has participated in several mountain treks to Bhutan, Annapurna, Kilimanjaro and Everest Base Camp

Sr, Director, Group Life Operations. Senior Manager SVP, Business Development & Senior Underwriter

Sr, Director, Group Life Operations. Senior Manager SVP, Business Development & Senior Underwriter Company Name A.M. Best A.M. Best Accelerated Actuarial Accord Systems Aetna Aflac Aflac Aflac Group Insurance AIG Allstate Benefits Allstate Benefits American Fidelity American Fidelity Assurance American