The financial community s needs from actuaries in due diligence
Download
1 / 13

- PowerPoint PPT Presentation


  • 143 Views
  • Uploaded on

The Financial Community’s Needs From Actuaries In Due Diligence. A CFO’s Perspective Presented at the CAS Annual Meeting Washington, DC November, 2000 by Gayle Haskell, FCAS, MAAA CFO & Chief Actuary, Providence Washington Insurance Companies. A PERSPECTIVE ON M & A’s.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about '' - hansel


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
The financial community s needs from actuaries in due diligence l.jpg
The Financial Community’s Needs From Actuaries In Due Diligence

A CFO’s Perspective

Presented at the CAS Annual Meeting

Washington, DC

November, 2000

by

Gayle Haskell, FCAS, MAAA

CFO & Chief Actuary, Providence Washington Insurance Companies


A perspective on m a s l.jpg
A PERSPECTIVE ON M & A’s Diligence

  • Consolidation to continue, P/C Industry

  • Many reasons to pursue an acquisition

  • Poor Industry results breed opportunities, and Risk

  • Many (?most?) Mergers fail Failures more visible then internal failures

  • Decisions required: fast, and at excitable pointRamifications often emerge later

“SYNERGIES” COME & GO; FINANCIAL IMPACTS LAST


Financial community s needs from actuaries performing due diligence l.jpg
FINANCIAL COMMUNITY’S NEEDS FROM ACTUARIES PERFORMING DUE DILIGENCE

  • OF COURSE, “TRADITIONAL STUFF”:

    • Reserve evaluation

Reprinted Courtesy of ‘Schiff’s Insurance Observer’


Financial community s needs from actuaries performing due diligence4 l.jpg
FINANCIAL COMMUNITY’S NEEDS FROM ACTUARIES PERFORMING DUE DILIGENCE

  • OF COURSE, “TRADITIONAL STUFF”:

    - Reserve evaluation

    - Economic valuation

    - Rate adequacy assessment

FINANCIAL COMMUNITY SEEKS MORE !!


Why seek more l.jpg
WHY SEEK MORE? DILIGENCE

  • Reserves, economic valuations often a range; buy/sell decisions aren’t

  • Volatility of some valuation vehicles

    Example: “Market Value”, and Market Caps ($B)12/9910/00 Amazon $ 36 $ 10 Ins Web 1 .06 AIG 172 214 Marsh & McLennan 24 32

  • Economic valuations may not reveal some important pressures Example: “Cash Is King”

  • It’s a short-term world!


Help the cfo the company make the right decision l.jpg
HELP THE CFO & THE COMPANY DILIGENCE MAKE THE RIGHT DECISION

  • Understand the audiences

  • Understand the constraints

  • “Put skin in the game”

  • Can it be “fixed”? How fast? Costs?

  • What are the risks? Timing? Solutions?

  • To “Economic”, add nearer-term financial impacts

Concisely Articulate & Stand Behind Your Recommendation!


Understand the audiences l.jpg
UNDERSTAND THE AUDIENCES DILIGENCE

  • CEO, Board

  • Owner(s)

  • Rating Agencies

  • SEC (Public)

Improves Input Quality & Personal Credibility


Understand the constraints l.jpg
UNDERSTAND THE CONSTRAINTS DILIGENCE

  • Examples:

    - Return horizon: “accretive to EPS by 2nd year”?

    - cash flow demands?

    Commercial Lines Companies ‘97‘98‘99 # Organizations 796 781 746 U/W Cash Flow ( 4.3) (10.1)(17.8)Investment Inc. 21.8 22.2 21.4

  • leverage

CONSTRAINTS, AND CONSOLIDATED CONSIDERATIONS, MAY OUTWEIGH TARGET’S STAND ALONE VALUE


Put skin in the game l.jpg

PUT SKIN IN THE GAME DILIGENCE

PUT SKIN IN THE GAME

$12M $200G

  • Ranges often appropriate, BUT

  • For Acquisition decision , not necessarily good enough

  • CFO needs tighter range , key risks, “When” , …..

AVOID PERCEPTION MORE IMPORTANT TO NOT BE WRONG - THAN - TO BE HELPFUL


Can it be fixed how fast l.jpg
CAN IT BE “FIXED”? HOW FAST? DILIGENCE

  • Current and recent accident years: Trend? Expectations next 2-3 AY’s?

  • Cash flow: To improve? Deteriorate? Asset implications?

  • Concentration: Excessive? Implications?

  • Data content & quality: Ability to effectively manage book

  • Quality of Key Personnel


What are the risks timing solutions l.jpg
WHAT ARE THE RISKS? TIMING? SOLUTIONS? DILIGENCE

  • Asbestos? Other singular exposures? Reinsurance solutions?

  • Developments, key state/line? How soon impact Net Income?

  • Past successes/failures masking emerging picture? Examples:

    • Release of previous reserve redundancies

    • Runoff of unprofitable business masking profitable growth


To economic add nearer term financial impacts l.jpg
TO “ECONOMIC”, ADD DILIGENCENEARER-TERM FINANCIAL IMPACTS

  • AY + Reserve development potential --> projected CY performance

  • Paid development techniques --> Cash flow projections

  • Pricing trends and opportunities --> WP and cash flow forecasts

  • Use DFA/other approaches to measure:

    - risks to financial proforma

    - target’s asset allocation vs. financial goals


Concisely articulate stand behind your recommendation l.jpg
CONCISELY ARTICULATE & STAND BEHIND YOUR RECOMMENDATION DILIGENCE

  • Concise, to the point: ‘due diligence’ is unlike fine wine

  • Provide straightforward, comprehensive linkage:

    • Longer term: reserves, valuation with

    • Nearer term: CY projections, cash flow estimates, etc .

  • “Go beyond the numbers”:

    • Any ‘walk-away’ issues you encountered?

    • Target’s capabilities

    • “Fixing it”: Slam dunk? Iffy?

  • Don’t equivocate

SEEK TO BE:

More than: THE TEAM’S BEST TECHNICIAN

Optimally: THE TEAM’S MVP