ROLE OF ACTUARIES

IN
MERGER & ACQUSITION

.
Conf
 Overview

What is Merger & Acquisition

Why Merger & Acquisition
The Role of the Actuary
 The Appraisal Process
 Economic Assumptions
 Actuarial Assumptions
 Modeling Considerations
 Determination of Value
 What is M&A…?

An Acquisition, also known as a takeover or a

buyout, is the buying of one company (the ‘target’) by
another. An acquisition may be friendly or hostile. In
the former case, the companies cooperate in
negotiations; in the latter case, the takeover target is
unwilling to be bought or the target's board has no
prior knowledge of the offer
Merger happens when two firms, often of about the
same size, agree to go forward as a single new
company rather than remain separately owned and
operated
 Why M&A…?

Economy of scale
Increased revenue or market share
Cross-selling
Synergy
Taxation
Geographical or other diversification
Resource transfer
Vertical integration
Diversification
Empire-building
Manager's compensation
 The Role of the Actuary

Types of Actuarial Analysis

 Actuarial Models
 The External Actuary
 The Appraisal Report
 The Appraisal Process

Buy vs. Sell

 Sell Side Preparation
 The Bidding Process
 Due Diligence
 Economic Assumptions

Macro-economic Assumptions
 Assets and Asset Valuation
 Projected Yields
 Risk Discount Rates
 Projection Currency
 Real vs. Nominal
 Actuarial Assumptions

Data Sources
 Premium Production
 Expenses
 Commissions
 Mortality/Morbidity
 Lapse and Surrender
 Actuarial Assumptions Cont.

Dividends
 Technical Reserves
 Options and Guarantees
 Reinsurance
 Taxes
 Cost of Capital
 Modeling Considerations

Individual Life
 Annuities
 Loss Ratio Lines
 Reserve Review
 Sensitivities
 New Business Production
 Valuation Date
 Determination of Value

Adjusted Book Value

Stock & Debt approach
Discounted cash flow approach
 Value of Existing Business
 Value of New Business
– Installed distribution capacity
– Alternative distribution channels
 Major M&A in the 2000s

Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to
2009:
 Failure of M&A

 Excessive premium
 Lack of research
 Diversification
 Unwieldy and Inefficient
 Poor Cultural, Organization or Strategic Fit
 Striving for Bigness
 Failure to Take Immediate Control
 Incomplete and Inadequate Due Diligence
 Ego Clash
 Over Leverage
 Failure of Leadership Role
 Inadequate Attention to People Issues
 Diverging from Core Activity
 Expecting Results too quickly
 Concluding Remarks

No "Cookbook" Approach

 No Substitute for Experience
 Importance of Communication, Teamwork
 Impact of Post-Transaction Form
Structure on Negotiations, Risk and Price
 Reporting Considerations