Trends in Insurance Capital Raising
and Capital Management
May 24, 2011
FIAR by xPrimm
www.silkroutefinancial.com
Introduction to silkroutefinancial
• silkroutefinancial is the only investment bank specialized in emerging markets financial
institutions, providing M&A, capital raising and financing advisory services to financial
institutions in emerging markets as well as international players with interest in the region.
• Established in 2007 by former senior bankers with HSBC London, silkroutefinancial is a fullservice, FSA-regulated investment bank with the head office in London, 6 regional offices and 2
representative offices.
• On the IB side, SRF has the largest number of senior bankers dedicated to financial institutions
in CEE. Our unique origination model combines local connectivity, operating industry experience
and extensive execution capability
• Despite turbulent time SRF has worked on numerous projects, including:
– Acted as sole financial advisor to Gothaer AG on the acquisition of a majority stake in
P.T.U. S.A, one of the top 15 insurers in Poland
– Advised a top 10 insurance company in Germany looking to acquire one of the top 15 in
Turkey and on acquisition of insurance companies in Russia & Ukraine
– Executed debt raising for a Ukrainian bank and advised them on bancassurance
agreements with international institutions
• Current active engagements include several listing of banks and insurance companies on the
WSE as well as sales mandates for smaller banks and insurance companies.
• In the process of establishing one of the largest Private Equity funds focused exclusively on the
insurance industry in Eastern Europe
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Public equity versus private equity
• We have all seen a fairly low interest in insurance on the part of public equity investors in the
region
• A few examples:
• 1-2 insurers listed in each of Poland, Bulgaria and Romania
• 5-6 insurers listed in each of Serbia and Turkey
• 1 insurance broker listed in Poland
• As investors warm up to the region and the stock markets in Eastern Europe stabilize, we will
see a greater number of insurance companies successfully tapping the public equity markets
• Eurohold in Bulgaria (parent of Euroins) has just completed a fairly successful capital
increase on the Sofia Exchange
• Listings of regional or local insurers on the Warsaw public market will soon be of great
interest to many executives in the industry
• Still, private equity will continue to remain significant for the intermediate and long term:
• Regional and international players will continue to expand
• French, German, American and, increasingly, Russian interest in the region
• Domestic investors will diminish their profile
• Private equity companies will start getting involved more in the region
• Tapping the public equity markets will require thorough preparation as investors will demand
transparency, performance, great corporate governance along with a good understanding of the
public market expectations
GWP vs Combined Ratio vs Return On Equity (ROE)
• The focus on growth has pushed many carriers in the region towards an outsized appreciation
of GWP with respect to an insurer’s performance
• While GWP will no doubt remain a critical metric for the industry, two key factors will slowly
make the Combined Ratio a more relevant differentiator for the purpose of comparing various
firms:
• Slowing growth – while the region remains dynamic, growth will come slower due to
better regulation and natural hurdles (market education, segment saturation)
• Investor pressure – recent experience will make investors less willing to reward growth
over profitability
• This is more apparent in Turkey, a market with chronic problems in terms of
profitability, where CR is:
• 107% in non-life
• 109% in health (life sector remains profitable)
• Especially for the larger markets and the larger companies, ROE will also become a more
meaningful metric in the intermediate future as investors learn from previous errors. In addition
to underwriting performance (which combined ratio already reflects), ROE covers investment
performance too.
• Senior managers need to ensure that their attention to investment returns is properly
allocated versus the underwriting activity
• As outsourcing of investment activity grows, professional money managers from the
Anglo-Saxon world are expected to increasingly set up shops in the region.
4
Life versus Non-Life market development
• With the life and health segments poised to grow significantly more than the non-life segment
in the next cycle, the investor focus is creating new opportunities
• Most significant new investments are now directed towards life and health opportunities
• We will continue to see greenfield investments both domestically within each national
market by local providers but also regionally by regional players
• In the non-life sector, credit and performance bond insurance are growing the fastest
• Health insurance products currently offered by medical services providers will increasingly be
underwritten and eventually taken over by qualified insurance carriers
• In the initial stages, health insurance will provide superior results
• However, in markets that will become chaotic and poor regulated, results will start
suffering in 3-5 years due to competition
• Life insurance product offering will mature and pricing will stabilize as Western Europe insurers
start looking for growth towards Emerging Europe
• The low to non-existing growth prospects in the West have been pushing players out of
those mature markets and those who want to survive will look to the East
• The Western expertise in money management will ensure good performance even after
underwriting performance will start dimming
• Senior care will become integral to life insurance contracts
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Valuation of non-life insurers
Publicly traded insurers
Date
Country
Market cap,
€m
P/LTM
GWP
P/GWP
2011 E
P/E
P/BV
ROE
2010
2010
2010
VIG
Austria
5,194
0.6x
0.6x
13.1x
1.2x
9%
PZU
Poland
8,235
2.2x
2.3x
13.3x
2.5x
20%
TU Europa
Poland
461
3.2x
na
10.5x
2.4x
26%
RSA
UK
5,416
0.5x
0.6x
13.6x
1.2x
10%
Aksigorta
Turkey
272
0.9x
0.9x
36.3x
1.5x
0%
Anadolu Anonim Turk Sigorta
Turkey
297
0.5x
0.5x
16.2x
0.7x
5%
Progressive
USA
1,561
na
0.1x
13.7x
1.2x
9%
P/GWP
P/BV
P/E
Acquired target
Acquirer name
Implied
Stake
Deal Value
value
acquired (EUR mn) (EUR mn)
Feb-11 Aksigorta
Ageas NV
31%
162
523
1.3x
0.4x
32.2x
Oct-10
Interalbanian SHA
Vienna Insurance Group
75%
8
10
1.6x
na
na
Jul-10
P.T.U. S.S
Gothaer Insurance Group
45%
32
71
0.7x
4.8x
nm
Jun-10
Fiba Sigorta
Sompo Japan Insurance
93%
243
261
1.7x
3.8x
18.6x
100%
203
203
1.5x
5.1x
na
Sep-08 Oranta
Eureko
Apr-08
Allianz SE
47%
248
528
1.1x
na
na
Feb-08 OTP Garantia
Groupama
100%
617
617
1.7x
6.5x
19.0x
Jan-08
Alcona Insurance
HDI-Gerling International Holding
94%
14
15
2.6x
5.1x
na
Jan-08
RESO Europa
Gjensidige Baltic
100%
18
18
1.1x
na
21.1x
37%
810
2,189
2.5x
12.1x
30.7x
Koç Allianz Sigorta
Dec-07 RESO Garantia
AXA
The information above can also be found on pg. 122 of the 2010 xPrimm Insurance Report
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Contact
Tony Romani
Associate Director
Head of SEE
M: +40 745 576 883
E: tony.romani@silkroutefinancial.com
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