concurrent session 1b: trends in p&c
TRANSCRIPT
Partner and Business Leader, Property and Casualty Actuarial
Pierre Lepage
President and CEO, MSA Research Inc.
Joel Baker
Partner, Deal Advisory – M&A
Georges Pigeon
Senior Manager, Consulting Actuary
Houston Cheng
3© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Your thoughts on current trends that are likely to shape the future
KPMG’s 25th Annual Insurance Issues Conference Dec 7, 2016
Overview of Trends, Opportunities and Challenges in the Canadian P&C insurance/reinsurance industry.
Joel Baker, CEO,MSA Research Inc. & CatIQ Inc.
WHO WE ARE AND WHAT WE DOMSA Research Inc. is a Canadian-owned, independent and impartial analytical research firm focused on the Canadian Insurance industry. MSA commenced operations in 2004.
De f in i t i ve i nsu rance i n fo rma t ion f o r i n te l l i gen t bus iness dec i s ions
PRODUCTS & SERVICES
2016 MSA Report P&C
MSA P&C and L&H Researcher SoftwareRelied on by the overwhelming majority of
players involved in the CDN market.
2016 MSA Benchmark Report P&C
2016 MSA Market Share Report P&C
2016 MSA Quarterly Report
CONFERENCESMSA organizes several significant insurance focused events throughout the year.
An intensive one-day financial conference focused on issues affecting actuarial, accounting, finance, analysis and investment professionals in the Canadian P&C insurance industry.
Bringing together an unparalleled gathering of professionals, expertise and timely content that represents the broad spectrum of the global cyber risk challenge.
Canada’s pre-eminent annual property & casualty insurance conference.
May 24, 2017Metro Toronto Convention
Centre
March 2-3, 2017Allstream Centre, Toronto
October 1-3, 2017Quebec City
OUTLINE
• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• CatIQ and a deeper look at Fort Mac• Summary and Discussion
OUTLINE
• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• CatIQ and a deeper look at Fort Mac• Summary and Discussion
OUTLINE
• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• CatIQ and a deeper look at Fort Mac• Summary and Discussion
BEFORE FORT MAC
• DPW up 5.9%
• Claims Down 1%
• U/W Income up 137%
• Inv Inc. down 8%
• Net Income up 10%
POST FORT MAC (6mos 2016)
• Claims Up 14%
• U/W Income $2+ billion negative swing.
• Inv Inc. down 30%
• Income wiped out.
OUTLINE
• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• Regional Players Vs. National Writers• CatIQ and a deeper look at Fort Mac• Summary and Discussion
MARKET SHAREShifts since 2006
Lumpy consolidation
41.7
64.4
82.8
35.4
55.1
79.6
0
10
20
30
40
50
60
70
80
90
Top 5 Top 10 Top 20
2015 2006
TOP 5 COMPANIES
Companies Market Share Companies Market Share
Intact 13.9 Intact 9.8
ICBC 8.1 ICBC 8.3
Aviva 7.2 Aviva 7.5
Desjardins 7.2 Co-operators 5.1
TD 5.4 Economical 4.7
Total 41.7 Total 35.4
2015 2006
109 IS A CROWDParticipants in the Commercial Market
Intact Financial Corp First American Group Estrie-Richelieu Legacy General Ins. Co.Lloyd's Underwriters Lawyers' Professional Ind Red River Valley Mutual PEI MutualAviva Canada Group RBC Heartland Farm Mutual Electric Insurance Co.AIG Ins. Co. Can Old Republic Ins. Co. EGI Financial Holdings American Road Ins. Co.RSA Canada Stewart Title Guaranty Co Co-operative Hail Ins Co Industrial AllianceNorthbridge Financia Trisura Guarantee Ins. Co AEGIS MAX Canada Insurance CoZurich Ins Co Ltd. Millennium Ins Corp. COFACE Sompo Japan NipponkoaCo-operators Group Gore Mutual Ins Co Chicago Title Ayr Farmers' Mutual Ins. Genworth Fin Mort Ins Can TD Insurance Triton Insurance Company Jewelers Mutual Ins. Co.EIG Wynward Ins Group Sunderland Marine Ins Co Cherokee Ins CoChubb Canada Group Motors Ins Corp Portage la Prairie Mutual Omega General Ins CoICBC Ecclesiastical Ins. Commonwell Mutual Mennonite Mutual Fire InsTravelers Group Everest Tokio Marine and Nichido Poultry Ins Exch RecipGreen Shield Canada Arch Insurance Canada Ltd Western Surety Co. Protective Ins CoFM Global Peace Hills General Virginia Surety Co. Sentry InsWawanesa Mutual Ins. Co. Berkley Ins Co Allstate Canada Grp Kings Mutual Ins CoAllianz Global Risks US BCAA Mitsui Sumitomo Ins Algoma Mutual Ins CoLiberty Mutual Group Optimum General Grp Allied World Specialty Antigonish Farmers'American Bankers of FLA Axis Reinsurance Co. Ironshore Insurance Ltd. Clare Mutual Ins CoSGI CANADA Group HDI Global DAS Legal Protection Promutuel ReGuarantee Co of NA Great American Ins Co Sask Mutual Ins. Co. T.H.E. Ins CoCanada Guaranty Mortgage EULER Hermes Amer Credit Hartford Fire Ins Co Pictou County Farmers'Desjardins Group Int Ins Co Hannover Atradius Credit Insurance InnovAssurContinental Cas. Co. Mutual Fire Ins Co of B.C Technology Insurance Comp First North American InsMunich Re Canada OSBIE MEARIE CorePointe Ins CoCapitale Group NLFIC SSQ, Societe D'AssurancesXL Group Starr Insurance & Reinsurance Aspen InsuranceSwiss Re Canada Group BI&I Trillium Mutual Ins Co.
109 IS A CROWDParticipants in the Commercial Market
Intact Financial Corp First American Group Estrie-Richelieu Legacy General Ins. Co.Lloyd's Underwriters Lawyers' Professional Ind Red River Valley Mutual PEI MutualAviva Canada Group RBC Heartland Farm Mutual Electric Insurance Co.AIG Ins. Co. Can Old Republic Ins. Co. EGI Financial Holdings American Road Ins. Co.RSA Canada Stewart Title Guaranty Co Co-operative Hail Ins Co Industrial AllianceNorthbridge Financia Trisura Guarantee Ins. Co AEGIS MAX Canada Insurance CoZurich Ins Co Ltd. Millennium Ins Corp. COFACE Sompo Japan NipponkoaCo-operators Group Gore Mutual Ins Co Chicago Title Ayr Farmers' Mutual Ins. Genworth Fin Mort Ins Can TD Insurance Triton Insurance Company Jewelers Mutual Ins. Co.EIG Wynward Ins Group Sunderland Marine Ins Co Cherokee Ins CoChubb Canada Group Motors Ins Corp Portage la Prairie Mutual Omega General Ins CoICBC Ecclesiastical Ins. Commonwell Mutual Mennonite Mutual Fire InsTravelers Group Everest Tokio Marine and Nichido Poultry Ins Exch RecipGreen Shield Canada Arch Insurance Canada Ltd Western Surety Co. Protective Ins CoFM Global Peace Hills General Virginia Surety Co. Sentry InsWawanesa Mutual Ins. Co. Berkley Ins Co Allstate Canada Grp Kings Mutual Ins CoAllianz Global Risks US BCAA Mitsui Sumitomo Ins Algoma Mutual Ins CoLiberty Mutual Group Optimum General Grp Allied World Specialty Antigonish Farmers'American Bankers of FLA Axis Reinsurance Co. Ironshore Insurance Ltd. Clare Mutual Ins CoSGI CANADA Group HDI Global DAS Legal Protection Promutuel ReGuarantee Co of NA Great American Ins Co Sask Mutual Ins. Co. T.H.E. Ins CoCanada Guaranty Mortgage EULER Hermes Amer Credit Hartford Fire Ins Co Pictou County Farmers'Desjardins Group Int Ins Co Hannover Atradius Credit Insurance InnovAssurContinental Cas. Co. Mutual Fire Ins Co of B.C Technology Insurance Comp First North American InsMunich Re Canada OSBIE MEARIE CorePointe Ins CoCapitale Group NLFIC SSQ, Societe D'AssurancesXL Group Starr Insurance & Reinsurance Aspen InsuranceSwiss Re Canada Group BI&I Trillium Mutual Ins Co.
OUTLINE
• Intro to MSA• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• CatIQ and a deeper look at Fort Mac• Summary and Discussion
LICENSED REINSURERS RANKED BY GPW
Swiss Re General Reinsurance Corporation
Munich Re XL Reinsurance America Inc.
Hannover Rück SE Aspen Insurance UK Limited
Everest Re Toa Reinsurance Company of America
Promutuel Réassurance Caisse Centrale de Réassurance
SCOR Canada Reinsurance Company Mapfre Re Compania de Reaseguros, S.A.
Farm Mutual Reinsurance Plan Inc.American Agricultural Insurance Company
Partner Reinsurance Company of the U.S. Sirius America Insurance Company
Odyssey Reinsurance Company Munich Reinsurance America, Inc.
Transatlantic Reinsurance Company Catalina General Insurance Co.
Axis Reinsurance Company
CESSIONS TO NON-AFFILIATED AS A % OF GPW
6.66.2
5.6 5.7
6.5
5.9 5.85.6
5.4
7.7
4.94.6
4.2 4.34.6
3.93.7
3.53.3 3.2
1.7 1.61.4 1.4
1.82 2.1 2.1 2.1
4.5
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Registered UnRegistered
OUTLINE
• Intro to MSA• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• Regional Players Vs. National Writers• CatIQ and a deeper look at Fort Mac• Summary and Discussion
CATIQ INC.
Catastrophe Indices and Quantification Inc. delivers detailed analytical and meteorological information on Canadian natural and man-made catastrophes. Launched with the support of the Canadian insurance and reinsurance industry in 2014.
2016/2017 ADVISORY COMMITTEECatIQ is guided by an advisory committee
Joel BakerPresident & CEO,MSA Research Inc. & CatIQ
Michael BriseboisGlobal Head of Reinsurance,TD Insurance
Paul CutbushSVP Catastrophe Management,Aon Benfield Analytics
Cara LowVP, Corporate Actuarial andAppointed Actuary, WawanesaMutual Insurance Company
Paul A. MacDonaldSVP & Chief Claims Officer,RSA Insurance Group
Glenn McGillivrayManaging Director,ICLR
Balz GrollimundHead Treaty Underwriting,Swiss Reinsurance Company Canada
Carolyn RennieManaging Director,CatIQ
Sean RussellManaging Director,Guy Carpenter & Company Ltd.
Eric SteenEVP, Reinsurance,JLT Re
Chris RolSenior Policy Advisor, IBC
Rebecca WagnerAssociate Director, PredictionServices Operations - Central Region, MSC, Environment and Climate Change Canada
© 2016 Catastrophe Indices and Quantification Inc. (CatIQ). Not for redistribution.
$-
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
2008 2009 2010 2011 2012 2013 2014 2015 2016
Mill
ions
CatIQ’s Estimated Annual Insured Catastrophe Losses in Canada(2016 Data Includes CATs up to September 30, 2016 - Subject to Change)
NE EstimatedLosses
CAT Losses
Notable Event (NE) losses are
estimated between $10-$25M
An average event loss of $17.5M is
used
Canadian CAT Loss Estimates
Fort McMurray Wildfire – During (May 3rd)• 4:00 pm - Evacuations continue – only major road (absolute chaos). Unofficial reports of
fire spreading into Absand Heights area destroying homes and flames in industrial areas south of Fort McMurray
• 5:00 pm – Premier Rachel Notley addressed situation– Biggest fire-related evacuation in AB history – Potential impact greater than Slave Lake
• 5:30 pm – Reports of buildings, gas stations, hotels, trailers & homes on fire > local wind gusts 50 km/h + still SSW similar situations forecast Wed.
• 6:49 pm – Northern edge of fire growing fast, all of Fort McMurray under MANDATORY Evac. Except MacDonald Island, Saprae Creek & Airport
• 88,000 + people successfully evacuated• No fire related injuries or fatalities• Media frenzy
© 2016 Catastrophe Indices and Quantification Inc. (CatIQ). Not for redistribution. 27
Fort McMurray Wildfire ~ $3.8 B (CAD)
© 2016 Catastrophe Indices and Quantification Inc. (CatIQ). Not for redistribution. 28
May 2, 20160815 MDT
May 3, 20160715 MDT
May 4, 20160715 MDT
May 5, 20160815 MDT
May 6, 20160715 MDT
May 19, 20161245 MDT
CatIQ’s 90 Day FMM Wildfire Loss Estimate180 day update released on Dec 1 to CatIQ subscribers
© 2016 Catastrophe Indices and Quantification Inc. (CatIQ). Not for redistribution. 31
~$3.8 B (CAD)
BACK OF NAPKIN LOGIC
• Assume $2 billion of FMM losses borne by reinsurers. • Years for reinsurance market to ‘earn’ this back assuming COR of
90:• Licensed NPE in 2015 $1.65B -> U/W income @90CR = $165
Million• Proportion of reinsurance business in AB = 10.3%. Ie $17 Million
Years to ‘Earn Back FMM’ :Canada: 12Alberta: 117.6FMM: Next Ice Age
Global Leaders’ Panel
Peter HearnPresident & CEO,Guy Carpenter &
Company Ltd.
John CharmanChairman & CEO,
Endurance Speciality Holdings Ltd.
Mark CloutierGroup CEO,
Brit Insurance Ltd.
Mike SapnarCEO,
Transatlantic Re
Laura TaylorManaging Partner & CFO,
Nephila Capital
Quoting VJ Dowling –Is it Diversification or Diworseification?
• Fort Mac may have put paid to Canada’s vaunted status as a safe diversifier for the global reinsurance market.
• https://youtu.be/uSHhkXiA8ZU
OUTLINE
• Growth? Haves and Have Nots• Results before and after FMM• A Consolidating Market with Quirks• A Look at the Reinsurance Scene• CatIQ and a deeper look at Fort Mac• Summary
CHALLENGES & IMBALANCES
• Volatility brought on by Cats and challenges in auto lines. • Heavy reliance on the $27 billion auto line (47%+ of
primary volume) – a losing game in the long run. • Primary rates not keeping pace w/escalating cat losses. • Consumers dangerously underinsured for EQ/Flood.• Extreme competition – battle for distribution• No formal federal backstop yet
OPPORTUNITIES
• Increasing need for property coverages, reinsurance and ILS solutions to cope with increasing frequency and severity; coverage gaps; public sector challenges.
• Growth of flood insurance
• Growth of Cyber
• Explosion of InsurTech
Thank You
Joel [email protected]. 416-368-0777 x21C. 416-577-6557@Joel_Baker1
www.msaresearch.comwww.catiq.com
6© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Insurance Landscape is Changing• FSCO review• IFRS 17• OSFI P&C MAC
Regulatory Issues
• Interdisciplinary collaboration• Actuarial Standards of Practice Use of Models• Stochastic reserving
Actuarial Modelling
• Actuaries Climate IndexTM
• Climate-related financial disclosures• Principles for sustainable insurance
Sustainability
• Artificial intelligence• Autonomous carsTechnology
• Sharing economy• Insurtech• Cyber risk• Blockchain
Digital Landscape
7© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Regulatory Issues
• Recommended new, independent and integrated regulator called the Financial Services Regulatory Authority (FSRA)
FSCO review
• Expected effective date of January 1, 2021• There will be impact to P&C insurers
IFRS 17
• Guidance provisionally entitled Criteria for the Use of Internal Models in the Determination of Regulatory Capital for Insurance Companies
• OSFI anticipates issuing guidance for consultation in 2017
OSFI P&C MAC
8© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Actuarial Modelling
• With advancements in data analytics and technology, actuaries will need to collaborate with professionals from different backgrounds
Interdisciplinary collaboration
• Comments on exposure draft closed• Expected to be adopted early 2017
Actuarial Standards of Practice on Use of Models
• Will play a role in IFRS 17
Stochastic reserving
9© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
SustainabilityActuaries Climate IndexTM
Joint effort by various North American actuarial organizations
Objective quarterly measure of changes in extreme weather frequency and sea level
Help educate public, policymakers, and actuaries about increased frequency of climate extremes
Actuaries Climate IndexTM
Ref
eren
ce P
erio
d S
tand
ard
Dev
iatio
ns
Source: www.actuariesclimateindex.org
10© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
SustainabilityFinancial Stability Board: Task Force on Climate-related Financial Disclosures
• G20 asked FSB to review how financial sector can take account of climate-related issues
Why
• Task Force chaired by Michael Bloomberg
Who
• Provide clear recommendations for preparers to disclose consistent information on climate-related financial risks
What
Physical Risks•Financial impacts of physical effects of climate change
Liability Risks•Financial impacts of legislation to limit carbon emissions, and potential for liability from contributing or failing to act on climate change
Transitional Risks•Financial impacts of failing successfully transition to low carbon economy
Additional Information: www.fsb-tcfd.org
11© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
SustainabilityPrinciples for Sustainable Insurance
The United Nations Principles for Sustainable Insurance (PSI) serve as a global framework for theinsurance industry to address environmental, social and governance (ESG) risks and opportunities.
• Embed in decision-making ESG issues relevant to insurance business1
• Work with clients and business partners to raise awareness of ESG issues, manage risk and develop solutions2
• Work with governments, regulators and other key stakeholders to promote widespread action across society on ESG issues3
• Demonstrate accountability and transparency in regularly disclosing publicly progress in implementing the Principles4
Additional Information: www.unepfi.org/psi/
12© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
TechnologyArtificial Intelligence
Improve efficiency
• Beyond textual data• Use Multimedia data• e.g., analyze
customer interactions
Reducecosts
• Increase automation• Improve accuracy• e.g., reduce claims
processing time
Gain competitive advantage
• Provide better customer service
• Simplify claim and underwriting process
Machine learning has changed other industries – insurance is primed to betransformed by deep learning
13© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
TechnologyAutonomous Cars – Potential Business Models
Illustrative Future State Business Models
Entity Scenario A Scenario B Scenario C Scenario D
Provide driving and vehicle data to insurers
Become distributor of insurance for a selected set of carriers
Act as an insurance company with many functions outsourced
Become a fully integrated insurance company
Strategic Angle Telemetry data Brand, customerconnectivity Product advantage Product advantage
Revenue Model Fees Commissions
Underwriting profit and investment income (annuity)
Vehicle and parts sales
Underwriting profit and investment income (annuity)
Vehicle and parts sales
License data fromOEMs to underwrite policies
Form alliances with OEMs
Serve as third-party administrators - for example, current insurers could process the claims of the OEMs
Transform business model to compete with new entrants
Expand into new products and services
OEM
sIn
sure
r
14© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Digital Landscape
Digital
Sharing Economy• Possessions• Trading• Knowledge/experience• Services• Lending/funding
Insurtech•Underwriting•Claim handling•Distribution• Internet of Things• Peer-to-peer
Cyber Risk•Risk to insurers•Risk to policyholders• Large and small scale•Organized attack
Blockchain
15© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Digital LandscapeBlockchain – Relevance to key insurance trends
Insurance trend/ topic Blockchain relevance
1 Insurance industry ripe for disruption Blockchain is a technology that could drive / enable disruption
2 Rise of automation and shift to a digital labor force
Blockchain raises the question of whether a paradigmshift in transaction processing is better than automating an existing process
3 Demographic changes with less understanding and lower demand for insurance products among millennial generation
Blockchain can help lower transaction costs, reducing cost of insurance for cost-conscious buyers
4 Customer expectations driven by experiences with platforms like Amazon, Apple, Uber, etc.
Blockchain can help drive quicker transaction processing for claim payment, etc. that can enable a better customer experience. Blockchain-enabled platforms can reduce barriers to entry for new competitors
5 Rise of the on-demand economy with new entrants already capturing market share
Blockchain can further enable low-cost transactions with near real-time confirmation
6 Rise of “social insurance” and peer-to-peer insurance
Blockchain helps eliminate the need for intermediaries to enable financial transactions
7 Legacy infrastructure and process challenges where transaction costs continue to comprise a large portion of premiums
Blockchain could drive a complete overhaul of existing transaction processing, driving down transaction costs
17© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Why undertake M&A?
Enter a new geographic market 1
Provide a new product and service 2Access a new distribution channel to reach customers 3
Equip operations with new tools 4
Capture new customers5
18© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The Canadian perspective Sustained number of transactions in insurance
Includes as targets:
– Underwriters
– Brokers/MGAs
Based on information extracted from KPMG’s Financial Services M&A Digest January 2013 to October 2016
– Insurance services: loss adjustors / claims management
– Employee / HR benefit distributors and servicers
12 12 13 1311 11
15 14
19
26
12 11
16
8
16
0
5
10
15
20
25
30
Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16
19© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Notable transactions
SunLife acquire Prime Advisors
Manulife acquire Std Chartered’sHK pension operations
Sun Life acquire Ryan Labs
Intact Financial acquire Canadian Direct Insurance
Co-operators acquire Premier Group
Sun Life acquire BentallKennedy
AJ Gallagher Canada acquire
Christie-Phoenix
Q1 Q2 Q3 Q4 Q1 Q2
2015
2015
2015
2015 2016
2016
Aviva Canada acquire RBC General Insurance
Foresters acquire AEGON Fund Management and AEGON Capital Management
Economical acquire Petsecure
People Corporation acquire BPA Financial
Q3
2016
CPPIB acquire Ascot
Fairfax acquire Zurich South Africa
20© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Profile of buyer remains concentrated…
Underwriters:– Aviva Canada– Fairfax Holdings, mostly overseas– Sun Life Canada
Distributors:– Hub International – Brokerlink– People Corporation– Co-Operators Group
…with non-traditional buyer profiles increasingly present
Private Equity/pension plan
5%
15%Service Provider25%
Underwriter
55%Distributor
Source: KPMG’s Financial Services M&A Digest January 2016 to October 2016
21© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Profile of targets remains concentrated…
Underwriters:– 67% cross-border– Continued consolidation in
Canada RBC General Insurance Petsecure
Distributors:– Local and regional players
…heavily focused on distribution
Source: KPMG’s Financial Services M&A Digest January 2016 to October 2016
Asset Management
7%
18%Service Provider
20%Underwriter
55%Distributor
22© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Matches made in heaven?Profile of buyers Profile of targets
– Buyers and targets are mostly “traditional”– Transaction structures remain mostly “traditional”
buy/sell Distribution agreements Earn-out structures
– Asset managers attractive to life carriers– Private equity/pension plan seizing opportunities
in underwriting and distribution
Distributor to distributor not necessarily the norm
Asset Management
7%
18%Service Provider
20%Underwriter
55%Distributor
Private Equity/pension plan
5%
15%Service Provider25%
Underwriter
55%Distributor
Source: KPMG’s Financial Services M&A Digest January 2016 to October 2016
23© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Drivers & catalysts of Canadian M&A activity
Succession planning01
Capital deployment / redeployment02
Suboptimal market positioning and/or profitability03
Wealth management04
05 Fintech / InsurTech
25© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Questions and Answers (1)
From the trends discussed by Houston, do you see any that could influence the level
of M&A activities?
26© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Questions and Answers (2)
How are smaller / regional players coping with recent and future challenges?
27© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Questions and Answers (3)
Many executives think it is very important to “keep pace” in order for their
companies to stay relevant.
Can you tell us how some companies are approaching the need to “keep pace”?
28© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Final Thought
If you were a member of a management team or of a Board, what would be the
P&C Industry trend you would follow the most in the next year?
Contact usPierre LepagePartner and Business Leader, Property and Casualty [email protected] 777 3630
Georges PigeonPartner, Deal Advisory – M&[email protected] 840 2178
Houston ChengSenior Manager, Property and Casualty [email protected] 777 8364
kpmg.ca
© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 13673
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.