Global Insurance Mergers and Acquisitions . Contents 03 Introduction 04 Global Insurance M&A 06 Global Deal Pricing and Value 08 Top 50 Global Deals (2011-2013) 10 Western Europe 14 North America 18 Asia Pacific 22 Latin America 26 Middle East and North Africa 30 Private Equity 32 Transaction Risk 2 Global Insurance – Mergers and Acquisitions . Introduction Dear board member This document draws together our views, observations and analysis of the global trends in the insurance M&A market, including influencing factors and macroeconomic variables. Our analysis covers five primary regions: Western Europe, North America, Asia, Latin America and the Middle East and North Africa. Each section includes a review and remark on deal activity and current trends, in addition to consideration of future bearings. We believe that improving macroeconomic conditions in developed markets will bring more positive activity in the near future. We would welcome the opportunity to discuss our insights into your specific sector with you. Peter Allen Partner Global Head of Insurance T +44 (0)20 7728 2154 E peter.d.allen@uk.gt.com Global Insurance – Mergers and Acquisitions 3 . Global Insurance M&A Since the global financial crisis, we have observed a consistent decline in global deal activity; with deal volume hitting its lowest level through 2011. However, there is ample evidence for optimism in the near future. Although a cautionary attitude towards M&A remains, the effects of more stringent monitoring of capital and operational ‘belt-tightening’ have left a number of firms with capital to deploy. Number of Global Insurance Deals (2006 – 2013) 1450 1060 892 755 615 4 Global Insurance – Mergers and Acquisitions 2012 537 342 2013 Source: Insurance Intelligence Center 2011 2010 2009 2008 2007 2006 518 Improved macroeconomic conditions in developed countries, allied to the availability of attractive financing options is having a positive effect on firms’ appetite to re-enter the M&A market. While most observers have suggested that the market has been driven by a desire to expand, both from a product and a geographic perspective, Grant Thornton’s research suggests that, following the global financial crisis, disposals remain a prominent driver. Additionally, domestic consolidation has emerged as a key theme, particularly in developed markets, but also in emerging economies. Between 2011 and 2013, over half of the companies targeted were insurance distributors.

Distributors present an attractive investment proposition for both cash buyers and private equity houses. The former due to their strategic importance; the latter because brokers are often cashgenerative. Moreover, the lack of exposure to underwriting risk reduces the capital volatility.

These tactical acquisitions are also highly beneficial for intermediaries as they allow them to meet their expansion plans. The acquisition of distributors is remarkably important in Western Europe and the United States. Despite high valuations in the wholesale broking sector, continued industry consolidation is expected in 2014 due to high intermediation in mature economies. . Global Insurance M&A Unsurprisingly, the United States remains the most active region globally. This is despite myriad challenges, including slow insurance market growth, poor insurance pricing and insurance catastrophes such as Superstorm Sandy. Meanwhile, there has recently been a notable rise in deal activity in emerging markets, particularly in Latin America and Asia Pacific. Insurers are increasingly drawn to high growth markets in search of returns. Conversely, insurers in emerging countries have shown a greater interest in acquiring companies established in mature economies. Volume of Global Insurance Deals: Regional Market Share Volume of Global Insurance Deals: Target Company by Subsector (2011 – 2013) (2011 – 2013) 2% 2% 7% 6% 19% 23% 11% 3% 11% 61% Europe Accident and Healthcare Asia Insurance Distribution Middle East & North Africa Life Insurance North America Non-Life Insurance Latin America 55% Reinsurance Services Source: Insurance Intelligence Center Source: Insurance Intelligence Center Global Insurance – Mergers and Acquisitions 5 .

Global Deal Pricing and Value The analysis of post-deal Total Net Asset Value (TNAV) and Price-Earnings Ratios (P/E Ratios) of the top 50 global deals presents interesting contrasts. P/E trends suggest that short-term sentiment reacts positively to deals. TNAV evaluations offer a direct contradiction. Companies suffer a decrease in net asset value the year following the deal. This is likely a direct consequence of deal costs such as re-alignment, operational changes or cultural integration. Nevertheless, this is followed by a steady recovery which derives from the strategic benefits of the acquisition. Top 50 Global Deals: Average TNAV (2011 – 2013) Deal Y-3 Deal Y-2 Deal Y-1 Deal Year Deal Y+1 Deal Y+2 Deal Y+3 0 5,000 10,000 15,000 20,000 US$ Million Source: Grant Thornton Research and Insurance Intelligence Center Top 50 Global Deals: Impact on Average P/E Ratio (2011 – 2013) Deal Y-3 Deal Y-2 Deal Y-1 Deal Year Deal Y+1 Deal Y+2 Deal Y+3 0 5 10 15 20 25 Price Earning Ratio Source: Grant Thornton Research and Insurance Intelligence Center 6 Global Insurance – Mergers and Acquisitions 30 35 . Global Deal Pricing and Value Price to book values recovered sharply in 2011 and eased off in 2012. One possible reason for the 2012 movement is that average deal sizes were much higher, implying that larger deals are unsurprisingly - priced more cautiously. Insurance Deals: Price to Book Value (2008 – 2012) 2.5 400 2 300 1.5 200 1 100 0.5 Average P/BV 3 500 US$ Million 600 No. of Deals Average Deal Values (US$M) 0 2008 2009 2010 2011 2012 0 Average P/BV Deal Multiples Source: Grant Thornton Analysis of Deloitte Insurance M&A 2013 Global Insurance – Mergers and Acquisitions 7 . Top 50 Global Deals (2011-2013) Although North America was the location for more than 60% of global M&A deals between 2011 and 2013, when considering the Top 50 Deals by Value, only 32% of the sample took place there. Surprisingly, despite significant lower insurance premium volume, Asia Pacific was the location for 26% of the top 50 global deals in 2012. In 2010 and 2011, the search for growth had been the overwhelming driver behind global deal making. Insurers sought to diversify their risk by expanding their product ranges and geographical footprint. Moreover, firms focused on maximising available capital, often taking advantage of perceived low prices and opportunities to acquire ailing businesses. Top 50 Global Deals: Breakdown by Region and Value (2011 – 2013) However, Grant Thornton’s analysis of the 50 largest deals between 2011 and 2013 indicates a change in trend.

Divestments, either by insurers or banks, are prevalent, with over 50% of deals driven by a desire to dispose of businesses that are not strategic priorities or are no longer financially profitable, or forced upon financial institutions by governments and regulators. Top 50 Global Deals by Region (2011 – 2013) 50,000 4% 2013 40,000 12% 26% 2012 US$ Million 2011 Western Europe North America 30,000 Southeast Asia 20,000 Middle East and Africa 32% 10,000 0 Latin America 26% Western North Southeast Latin Middle East Europe America Asia America and Africa Source: Grant Thornton Analysis 8 Global Insurance – Mergers and Acquisitions Source: Grant Thornton Analysis . Top 50 Global Deals (2011-2013) Insurance Premium Volume by Region (2008-2012) (2008 – 2012) Top 50 Global Deals Rationale (2011 – 2013) 2,000,000 4% US$ Million 1,500,000 35% 31% Divestment by an Insurance Business Divestment by a Bank 1,000,000 Private Equity Bolt-on 500,000 Unrated 8% 0 2008 22% 2009 2010 2011 Western Europe Advanced Asian Markets North America 2012 Emerging Asia Latin America Source: Sigma Prior to the global financial crisis, consolidation drove deal-making activity, partly due to the ease with which institutions could leverage debt, in addition to the availability of funding from Private Equity investors. Moreover, as banks sought to broaden their portfolios, particularly given the increasing appeal of bancassurance products, M&A activity led to further consolidation. However, with the financial pressures resulting from the crisis came a change in the status quo. Banks were required to rebuild their balance sheets, sometimes by disposing of their non-core businesses. Each trend that typified pre-crisis conditions was systematically reversed by the new norms. Source: Grant Thornton Analysis of Insurance Intelligence Center Macroeconomic conditions are showing favourable trends; as 2014 progresses, market conditions are likely to be more akin to those of pre-crisis times, at least in developed markets. The cyclical nature of such trends would suggest that, with improved conditions, deal-making will increase and consolidating trends will return. Global Insurance – Mergers and Acquisitions 9 .

Western Europe 10 Global Insurance – Mergers and Acquisitions . Western Europe Western Europe Despite recent signs of recovery and improved levels of confidence, uncertainty remains in Western Europe, particularly in the south. In the current low growth environment, many companies have opted for organic growth over acquisitions, explaining the relatively low volume of deals in the last four years. Nevertheless, with 19% of global deals, as a whole, Europe remains an important location for M&A activity. Although Europe is often perceived as a single market, the political and macroeconomic panorama varies dramatically from one country to another. The vast difference in deal volume between states is therefore unsurprising. A recent survey by Clifford Chance found that the UK is the most attractive European country for M&A1. Despite the stringent entry requirements imposed by the Franchise Board, Lloyd’s of London remains one of the most appealing investment propositions.

For insurers outside Europe, Lloyd’s guarantees immediate access to a global network of licences, a pool of business and a rating2. In such a mature market, internal growth opportunities are limited, especially in this uncertain economic climate; consequently, we expect more consolidation in order to achieve economies of scale or capital efficiency, particularly now that the Solvency II timeline is clearer. Western Europe: Gross Written Premiums (2009 – 2013) 300 US$ Billion 250 Austria 200 Germany 150 France Italy 100 Spain 50 0 Switzerland United Kingdom 2009 2010 2011 2012 2013 Source: Insurance Intelligence Center Western Europe: Penetration as a % of GDP (2012) 12 10 8 6 4 Total 2 Life 0 Non-life United Kingdom France Italy Germany Spain Austria Switzerland Source: Insurance Intelligence Center 1 Clifford Chance. “European M&A: On the road to recovery?” 2 Clyde&Co: “M&A activity, A Global Overview 2009-2013” Global Insurance – Mergers and Acquisitions 11 . Western Europe Many European insurers are looking to invest in emerging markets as they offer greater returns. This is particularly true for Property and Casualty, composites and reinsurance firms. However, there is competition for quality targets. Further transactions are motivated by a desire to diversify the product offering and diversify the scope of the distribution model; not only to achieve greater returns, but also due to the pressure from rating agencies that may apply pressure to firms that do not offer a wide range of products in various regions3. The Lloyd’s Market will continue to entice deal-makers, its global standing and exposure to a highly diverse portfolio of risk regardless of market conditions appeals to international insurers looking to expand their global footprint. The similarity in risk profile between the Lloyd’s Market and reinsurers or Property and Casualty specialists, remains attractive. Meanwhile, as a mature market showing signs of renewed macroeconomic growth, Grant Thornton does not expect to see major structural changes in M&A activity in the near future. Deal-making is likely to be on an opportunistic basis, partly driven by disposals. Western Europe: Target Company by Subsector (2011 – 2013) Europe: Number of Deals and Average Deal Value (2010 – 2013) 47% 300 225 40 27% 375 150 20 75 0 2010 2011 2012 2013 Deal Value (US$ Million) 100 6% 450 60 6% 120 80 4% 0 10% Number of Deals Accident and Healthcare Insurance Distribution Life Insurance Non-Life Insurance Reinsurance Services Source: Grant Thornton Research and Insurance Intelligence Center 3 Ibid 2 12 Global Insurance – Mergers and Acquisitions Average Value of Disclosed Deals The United Kingdom is widely perceived as the most attractive M&A market in Europe. Germany and Scandinavian countries complete the list of the most attractive countries. All are stable environments in which to operate and have remained relatively resilient to much of the financial turmoil witnessed in Southern Europe since 2008. Source: Grant Thornton Research and Insurance Intelligence Center .

Western Europe The Most Attractive European Countries for M&A1 1 United Kingdom 2 Germany 3 Sweden 10 Italy – Luxembourg – Switzerland – Ukraine 4 Norway 5 Denmark 6 France – Russia 9 Poland 8 Netherlands Case Study: Flotation UK life insurers are being affected by the Retail Distribution Review which encourages customers to shop around for better deals and increases competition. Life insurer Partnership Assurance, owned by private equity firm Cinven and valued at £1.8 billion, was floated in June 2013. The flotation presented the firm’s owners with a return of more than seven times their investment. Morgan Stanley and Bank of America managed the IPO. Nevertheless, the company recently suffered a 21% fall in its share price after missing their sales targets and announcing that they don’t expect sales growth. In its IPO prospectus, Partnership predicted that distribution channels could be “adversely affected” if regulators were to “consider that any of the agreements the group has in place with distributors are at risk of non-compliance with their interpretation of the rules, or the spirit of, the RDR”. Similarly, Just Retirement was floated at the beginning of November 2013 but its shares fell 5% on the first day, this is the second experience of the company in public markets. It was bought by a private company in 2009 when its shares were badly affected during the financial crisis. As public markets re-open through 2014, large deals are likely to be conducted via flotation, particularly as Private Equity firms look for strategic exits. Europe: Volume of Insurance M&A Deals (2010 – 2013) 11 80 2010 70 2011 60 10 2012 50 2013 40 30 9 20 13 20 France Italy Germany Spain Austria Switzerland 20 United Kingdom 12 0 20 10 11 Lloyd’s M&A Transactions (2010 – 2013) Source: Grant Thornton Research and Insurance Intelligence Center 1 Source: Insurance Intelligence Center Source: Towers Watson Global Insurance – Mergers and Acquisitions 13 .

North America 14 Global Insurance – Mergers and Acquisitions . North America North America Despite the adverse effects of the financial crisis and burgeoning growth in emerging markets, North America continues to dominate the insurance M&A market, contributing over 50% of deals globally, between 2011 and 2013. This is both a predictable and natural consequence of the size and maturity of the world’s premier insurance market. Nevertheless, despite the economic signs of recovery, growth is still slow and has been further affected by budgetary disagreements. Compared with previous years where there were suggestions of a recovery, 2013 saw a significant reduction in deal volume in the US. Moreover, average deal value has also decreased every year since 2010 and the number of reported deals in 2013, to date, is only 25% of that in 2010. Regulation continues to play a key role in both Canada and the USA’s insurance market. Canada’s historically burdensome regulatory environment, coupled with domestic domination of the market, has made the environment less attractive to foreign companies, which explains the country’s low volume of insurance deals. Increasing solvency and corporate governance requirements are likely to cause mid-sized and smaller underwriting businesses difficulty.

Large insurers possess the resources and capabilities to handle these changes. This could potentially drive consolidation in some of the region’s more fragmented insurance sectors. The Patient Protection and Affordable Care Act, is also propelling consolidation in the healthcare sector. North America: Gross Written Premiums (2009 – 2013) North America: Distribution Channels (2011 – 2013) 1200 100% US$ Billion 1000 80% 800 60% 600 40% 400 Agencies Bancassurance 200 0 20% Insurance Brokers E-Commerce 2009 2010 United States Canada Source: Insurance Intelligence Center 2011 2012 2013 0% Direct Marketing United States Canada Source: Insurance Intelligence Center Global Insurance – Mergers and Acquisitions 15 .

North America An improving macroeconomic environment will drive activity through 2014. Grant Thornton believes that, with the emergence of capital-related regulatory requirements, deal activity will pick up and, likely, be marked by consolidation. Firms will increasingly focus more on management and allocation of capital. More integrated, enterprise-wide approaches to risk management will be unavoidable, particularly for larger insurers. North America: Volume of Insurance Deals (2010 – 2013) North America: Number of Deals and Average Deal Value (2010 – 2013) 350 1750 300 1500 250 250 1250 200 200 1000 150 150 750 100 100 500 50 50 250 Canada 300 0 2010 2011 2012 2013 0 2010 2011 2012 2013 0 Number of Deals Average Value of Disclosed Deals Source: Grant Thornton Research and Insurance Intelligence Center 16 Global Insurance – Mergers and Acquisitions Source: Grant Thornton Research and Insurance Intelligence Center Deal Value (US$ Million) 350 USA . North America Case Study: Market Consolidation In February 2013, Markel Corporation, an underwriter of speciality insurance products, entered into a merger agreement to acquire Alterra Capital Holdings Limited, a Bermudian provider of diversified insurance and reinsurance products for $3.1 billion. In a joint statement the companies declared: “The combination of Markel and Alterra is expected to create significant benefits for the shareholders of both companies, and to provide a robust foundation for strong financial performance going forward”. This merger brought together different underwriting teams with limited overlap in diverse specialty insurance and reinsurance lines. These complementary business profiles provided important diversification of risk. Despite seeing some senior departures when the merger was announced, the deal has already attracted increased submissions. Dave Kalainoff, Markel Chief Underwriting Officer, stated: “We are seeing more quota share opportunities with submissions coming in from companies interested in buying. Pricing on the original business is now getting close to the point where we can support a quota share”. In August 2013, AM Best affirmed the financial strength rating of A upon Alterra Bermuda Limited and its affiliated operating companies.

This rating took into consideration the consolidation and the future benefits to result from its integration into Markel. The rating also confirmed the immediate benefits gained in terms of scale, reach, brand, distribution platform and its leadership position in the excess and surplus lines market place in the United States. North America: Target Company by Subsector (2011 – 2013) 1% 2% 6% 20% Accident and Healthcare Insurance Distribution Life Insurance Non-Life Insurance 6% Reinsurance Services 65% Source: Grant Thornton Research and Insurance Intelligence Center Global Insurance – Mergers and Acquisitions 17 . Asia Pacific 18 Global Insurance – Mergers and Acquisitions . Asia Pacific Asia Pacific With an 11% share of the global market, Asia Pacific closes the gap on the European market. trade at a median Price to Book (P/B) ratio of 1.731, while deals in Europe and the United States are struck at rates closer to half of that. This suggests that these valuations are prompting hesitation on the part of investors. Despite considerable investor interest in recent times, the Asian market remains proportionately under-penetrated. This makes for an attractive proposition for investors and acquirers. Deal volumes were flat through 2012 and early 2013, following a raft of activity in 2011 as the region emerged as the primary destination for investors looking for increased Return on Equity. The deal-making frenzy of 2011 has had a notable impact on valuations in the region. Buyers are often faced with inflated valuations or, some may argue, valuations that better reflect the growth potential of the region.

Asian insurers Asia Pacific: Gross Written Premiums (2009 – 2013) 500 US$ Billion 400 China 300 Indonesia Japan 200 Hong Kong Malaysia 100 Philippines South Korea 0 2009 2010 2011 2012 2013 Source: Insurance Intelligence Center Asia Pacific: Volume of Insurance Deals (2010 – 2013) 20 16 12 2010 8 2011 ia Ind or e Si ng ap Ko h ut So ng Ko re a ng an Ja p Ho an Ta iw Ch m et na Vi ys ia ala M es ne s on Ind pi ilip Ph ail an Th ina 2013 ia 2012 0 d 4 Source: Insurance Intelligence Center 1 Thompson Reuters Global Insurance – Mergers and Acquisitions 19 . Asia Pacific Asia Pacific: Number of Deals and Average Deal Value (2010 – 2013) 50 500 40 400 30 Correlated to strong economic growth, the demand for insurance is growing. Indonesia and Malaysia present a strong case for investment in the region, with penetration rates below 5% of GDP, coupled with growing populations and increasing personal wealth. The Indonesian market continues to grow, premiums having increased 10% year-on-year2, so the opportunity to make investments is considerable. Deal rationale in the region is dominated by the ambition to expand existing business. Close to 15% of all deals are motivated by a desire to expand geographically. A significant number of deals originate from better capitalised foreign investors looking to enter the Asian marketplace.

Yet, over 60% of all deals originate from within the region. Opportunities may result from reduction in foreign ownership restrictions, particularly in countries such as India. Despite relatively subdued M&A levels in India in recent times, the government has indicated publicly (both at home and abroad) its intention to increase the current 26% FDI limit to 49%. Yet, there has been political opposition and it is thought that legislation may be further delayed. Nonetheless, India’s large population, growing middle class, significant under-penetration of products and a need for additional capital cannot be filled by local investors alone. 600 300 20 200 10 100 0 2010 2011 2012 Average Value of Disclosed Deals Source: Insurance Intelligence Center Asia Pacific: Target Company by Subsector (2011 – 2013) 3% 12% 32% 18% Reinsurance 35% 15 10 Total 5 Life Non-life ng Ko an ng Ho Ja p ng ap or e re a Si Ko th So u ilip pi ne s an Ph Ta iw ina Ch m na Vi et ala ys ia M on es d Ind an ail Th ia 0 20 Global Insurance – Mergers and Acquisitions Insurance Distribution Non-Life Insurance 20 Grant Thornton Analysis of Insurance Intelligence Center Accident and Healthcare Life Insurance Asia Pacific: Insurance Penetration as a % of GDP (2012) 2 0 Number of Deals Source: Insurance Intelligence Center Source: Insurance Intelligence Center 2013 Deal Value (US$ Million) 60 .

Asia Pacific Case Study: Bank disposal In February 2012, HSBC sold its entire shareholdings (15.57%) in Ping An Insurance (Group) Company of China to Charoen Pokphand Group Company Limited for US$9.39 billion. It is estimated that the bank made US$2.6 billion out of the disposal. As HSBC’s Chief Executive confirmed, this transaction represents further progress in the execution of the group’s strategy. In 2012, the UK bank sold its general insurance businesses in Hong Kong, Singapore, Argentina and Mexico. Thanks to this sale, HSBC expects to boost its Core Tier 1 capital ratio by half a percentage point and its total capital ratio by a full percentage point improving its Basel III position. This acquisition by Charoen Pokphand Group, owned by Dhanin Chearavanont, represents the biggest Chinese acquisition by a Thai entity. An analyst noted that “it makes sense for the group to get its hands in the country’s financial sector as a way to capture some of China’s fast growth”. Disposals continue to drive the Global Insurance M&A market.

Grant Thornton’s analysis of the 50 largest deals between 2011 and 2013 found that 33% of deals were bank disposals. The trend is a direct consequence of the regulatory constraints on banking institutions. Subsequently, many of these disposals court the attention of local insurers looking to diversify their product offerings or expand their geographical presence. Easy to enter? Asia Pacific: Market Attractiveness vs.

Ease of Entry 180 170 Singapore 160 Market Attractiveness The dynamic and unique political and regulatory nuances of the Asian region present myriad challenges to investors. Balancing the attractiveness of the market and potential returns against the challenges they will face is a key success factor for inter-regional deals. 150 140 Malaysia Indonesia Taiwan Hong Kong 130 120 Thailand India 110 Vietnam 100 90 80 0 10 20 30 40 50 Ease of Market Entry Source: Grant Thornton Analysis Non-Life GWP (2011) Global Insurance – Mergers and Acquisitions 21 . Latin America 22 Global Insurance – Mergers and Acquisitions . Latin America Latin America Considering the major economic crisis and the periods of political instability that South America went through during the 90’s, the economic recovery of the last decade is more than remarkable. This region is now prosperous, generally stable and therefore an attractive destination for investors affected by the slow growth and financial volatility of the developed world. Brazil is the biggest insurance market in the region, the volume of written premiums having doubled in the last five years. Vast infrastructure investments, the recent discovery of oil reserves and the hosting of two sporting mega-events will increase the premium growth potential. Chile shows the highest insurance penetration rates which are mainly due to the premiums linked to its social security programs. Although Chile’s population is a lot smaller than that of Argentina and Colombia, their Gross Written Premiums are comparable. Despite progress made in recent years, penetration rates in the region remain low and mainly driven by non-life insurance, offering unprecedented prospects for premium growth. Latin America: Gross Written Premiums (2009 – 2013) US$ Billion 80 60 Argentina 40 Brazil Colombia Peru 20 Chile Mexico 0 2009 2010 2011 2012 2013 Source: Insurance Intelligence Center Latin America: Penetration as a % of GDP (2012) 4 3 2 Total 1 0 Life Non-life Chile Venezuela Brazil Argentina Panama Colombia Mexico Uruguay Ecuador Peru Source: Insurance Intelligence Center Global Insurance – Mergers and Acquisitions 23 . Latin America Latin America: Number of Deals and Average Deal Value (2010 – 2013) 35 600 30 500 25 400 20 300 15 200 10 100 5 0 Deal Value (US$ Million) There has been sustained deal flow in Latin America since 2011, with Brazil, Mexico and Argentina particularly prominent. Although the region is attractive to foreign investors, most of the deals have been internal. Despite the lack of barriers to entry, potential investors must consider the high-market concentration in some of the most attractive countries, such as Brazil or Mexico, where the top five insurers dominate the non-life sector. Distribution networks and brokers remain principal targets for acquirers, contributing over 40% of total transactions in recent times. The absence of capital volatility associated with underwriting businesses, combined with the regional importance of distribution networks and their subsequent value, ensure these businesses are attractive to a wide range of potential acquirers. One of the main reasons we have not seen more activity in the region is because the largest international companies such as Zurich, Allianz and MetLife are already present in the market.

Undoubtedly, the mild depression of the economy has also had a negative effect on the number of transactions. Nevertheless, the increasing demand for more sophisticated insurance products will continue to attract experienced foreign investors; therefore, we expect strong insurance M&A activity though 2014 and beyond. 2010 2011 2012 2013 0 Number of Deals Average Value of Disclosed Deals Source: Grant Thornton Research and Insurance Intelligence Center Latin America: Target Company by Subsector (2011 – 2013) 5% 10% 26% Accident and Healthcare Insurance Distribution Life Insurance 42% 17% Source: Grant Thornton Research and Insurance Intelligence Center 24 Global Insurance – Mergers and Acquisitions Non-Life Insurance Reinsurance . Latin America Case Study: UnitedHealth Group acquires 90% of Participações As part of its plan to grow overseas, UnitedHealth Group Inc. bought 90% of Brazil’s Participações for $4.3 billion. With this acquisition, the American company intends to enter the rapidly growing health market in Brazil, where the expanding middle class is stimulating demand for health-related insurance products. The company’s Chief Executive, Stephen J. Hemsley, compared Brazil’s potential to the U.S.

market several decades ago and stated: “We believe we have never seen a more compelling opportunity for growth, value and service”1. Although some analysts consider that the price paid for the acquisition is somewhat onerous, it is justified by the country’s growth potential as only one quarter of the population has private health insurance. Moreover, despite the Brazilian government offering health care services, due to budget constraints, the system is strained. Therefore the demand for such products is expected to grow exponentially. In the US market, due to burdensome regulation, numerous companies are looking for faster growing companies overseas.

On the other hand, foreign companies benefit from the US expertise in the health sector. Despite the obvious benefits of the deal, United Health will face myriad post-deal regulatory challenges, particularly as Brazilian law does not fully permit foreign ownership of hospitals. Latin America: Volume of Insurance Deals (2010 – 2013) 20 16 12 2010 8 2011 4 0 2012 2013 Argentina Brazil Bolivia Chile Colombia Ecuador Mexico Peru Source: Insurance Intelligence Center 1 The Wall Street Journal: ‘UnitedHealth to Buy 90% of Brazil’s Amil for $4.3 billion’ 2 Grant Thornton Analysis of Economist Intelligence Unit, 2013 Global Insurance – Mergers and Acquisitions 25 . Middle East and North Africa 26 Global Insurance – Mergers and Acquisitions . Middle East and North Africa Middle East and North Africa The IMF states that the “near-term economic outlook for the MENA region has weakened”1. Deal volumes and values remained relatively robust in the immediate aftermath of the global financial crisis. However, in light of numerous regional conflicts and political transitions, the region faces a period of uncertainty. Gross Written Premiums have continued to grow, year-on-year, with the non-life market representing close to two thirds of the total premiums written in the region. Though, real premium growth dropped by close to 50% in 2012. Despite short-term turbulence, social and demographic trends in the region are favourable – an increasingly affluent and young population, low insurance penetration rates (regionally, 1.1%) and wealthy governments prepared to invest in infrastructure and social welfare. Indeed, projected CAGR growth between 2012-2017 is estimated at 18.1% per annum 2. Cultural hurdles and state-owned businesses remain the primary barriers to more significant M&A activity in the region.

Added to this, regulatory restrictions complicate matters; in the United Arab Emirates and Saudi Arabia, all domestic companies must be publicly listed. Middle East and North Africa: Gross Written Premiums (2007 – 2013) Bahrain 10 US$ Billion 12 United Arab Emirates Syria 8 Morocco 6 Oman Jordan 4 Kuwait 2 Turkey Israel 0 2007 2008 2009 2010 2011 2012 2013 Source: Insurance Intelligence Center Middle East and North Africa: Penetration as a % of GDP (2012) 5 4 3 2 Total 1 0 Life Non-life Bahrain United Syria Arab Emirates Morocco Oman Jordan Kuwait Turkey Israel Source: Insurance Intelligence Center 1 IMF Regional Economic Outlook – Middle East and Central Asia, November 2013 2 M&A Activity, A Global Overview, 2009-2013 – Clyde & Co, 2013 Global Insurance – Mergers and Acquisitions 27 . Middle East and North Africa 7 Middle East and North Africa: Volume of Insurance Deals (2011- 2013) 6 Middle East and North Africa: Number of Deals and Average Deal Value (2011 – 2013) 30 900 800 25 700 20 600 500 15 400 10 300 200 5 100 0 2011 2012 2013 0 Number of Deals Average Value of Disclosed Deals Source: Grant Thornton Research and Insurance Intelligence Center Middle East and North Africa: Target Company by Subsector (2011 – 2013) 2011 2012 2013 5 Deal Value (US$ Million) Initial IPOs have brought about strained valuations in the region, with initial share prices often trading at a discount to the underlying Total Net Asset Value (TNAV) of a company. Deal volume rose through 2011 and 2012, but dipped through 2013, likely as a result of the growing political and social unrest in the region. Despite reduced deal activity, the average deal value increased significantly from 2011 to 2012; an underlying sign of a region with strong medium-term growth prospects. While inward cross-border deal volumes remain low, countries such as Turkey and the United Arab Emirates are attracting the attention of investors seeking greater returns than in more mature markets. Interestingly, a recent survey by Baker & McKenzie found that 95% of respondents believed that their investment in ‘fragile states’ over the past five years were ‘helpful to very helpful’3. Moreover, Baker & McKenzie found that those investing in ‘fragile states’ were more likely to be from less mature markets, such as Asia and South Africa. Accident and Healthcare 19% Insurance Distribution Life Insurance 42% Non-Life Insurance 4 23% 3 2 16% 1 Source: Grant Thornton Research and Insurance Intelligence Center 3 Opportunities Across High-Growth Markets, Baker & McKenzie, 2013 28 Global Insurance – Mergers and Acquisitions it wa Ku an an Source: Grant Thornton Research and Insurance Intelligence Center Jo rd o Om or oc c M E hr ain Ba UA l ae Isr Qa ta r Sa ud Ar i ab ia Tu rk ey 0 .

Middle East and North Africa Takaful Takaful is an ancient Arab concept, relating to a pooled liability that obliges those who commit offences to pay compensation to their victims. In its modern-day manifestation, Takaful is commonly referred to as Islamic insurance. The core difference to conventional insurance revolves around cooperative principles and mutual ownership. Takaful policyholders share in, and are liable for, both the profits and losses of pooled funds; with vendors acting, effectively, as fund operators. Takaful is offered by around 200 companies globally4, in both Muslim and non-Muslim countries. Insurance contributions in the sector have grown by 18% through 2013.

Products include both Life and General Insurance risks, with a small number of re-Takaful companies emerging in core markets. Close to half of all the existing Takaful companies are based in Gulf Cooperation Council (GCC) countries, with Malaysia and Indonesia as burgeoning markets. Why Takaful? Global Takaful Contributions (2007 – 2013) 18000 Levant GCC South Asia ASEAN Africa Saudi Arabia 16000 14000 12000 US$ million With Muslims forming over 22% of the world’s population1 and the Islamic world comprising 1.7 billion Muslims3, this is a significant customerbase that insurers can ill afford to ignore. Indeed, Standard and Poor’s observed that, in the Islamic world, “traditional insurers and reinsurers have met with sudden and often aggressive competition from Sharia-compliant Takaful and cooperative providers”2. While M&A activity in the Takaful segment is limited, particularly relative to traditional deal activity, as the market evolves and insurance penetration rates in Islamic growth regions increases, deal activity is likely to increase significantly. A number of recent deals have suggested a growing trend towards cross-border transactions between the Gulf and Asia. As deal volume increases, the Takaful sector will grow its credentials as a truly global insurance offering able to make significant inroads in areas that, to date, remain largely under exploited. Takaful has established itself in regional pockets to capitalise on market opportunity, Takaful requires global operators able to utilise established operational functions and leverage distribution networks to reach a far wider audience. 10000 8000 6000 4000 2000 0 2007 2008 2009 2010 2011 2012 2013 Source: Grant Thornton Analysis of EY Global Takaful Insights, 2013 1 CIA World Factbook, 2013 2 Thompson Reuters 3 Islamic Finance Outlook, Standard & Poor’s, September 2012 4 Middle East Insurance Review, April 2013 Global Insurance – Mergers and Acquisitions 29 .

Private Equity 30 Global Insurance – Mergers and Acquisitions . Private Equity Private Equity With over 130 deals in the last three years, it is evident that the insurance industry has become a popular destination for Private Equity to invest in. Most deals have taken place in Europe and North America, followed closely by Asia Pacific. The insurance sector is particularly attractive for PE firms looking for investment opportunities in the current low-return market place. Europe is an attractive destination due to the low levels of political risk and the important role that insurers play in the economy. Our research shows that in recent years PE firms actively sought out non-life insurers and distribution vehicles; these are sectors where investors can achieve greater returns on investment without exposure to underwriting risk. Certain regulators around the world, especially in Asia, consider that PE firms should not own life businesses. The belief is that the social importance of this sector needs to be protected and therefore private equity houses are not the ideal owners. In a recent survey by Towers Watson, 45% of respondents saw private equity firms as a driving force behind deal-making, particularly in Europe and North America1. Global Private Equity deals (2011 – 2013) Number of Deals 20 1400 18 1260 16 1120 14 980 12 840 10 700 8 560 Europe 6 420 North America 4 280 2 140 0 2011 2012 2013 Southeast Asia Europe North America Latin America Deal Value US$M Southeast Asia Latin America 0 Source: Grant Thornton Research and Insurance Intelligence Center Global Private Equity deals by Industry (2011 – 2013) 80 45000 70 40000 35000 60 Number of Deals Deal Value US$M 30000 50 25000 40 20000 30 15000 20 10000 10 0 M an ag Ris em k en t Se rv ice s ur Life an ce Ac cid He e alt nt & hc a Re re ins ur an ce Ins No Ins n-L ur ife an ce Di st rib u Ch tio an n ne l 0 5000 Source: Grant Thornton Research and Insurance Intelligence Center 1 Towers Watson: Surviving the Perfect Storm Global Insurance – Mergers and Acquisitions 31 . Transaction Risks 32 Global Insurance – Mergers and Acquisitions . Transaction Risks Transaction Risks As the macroeconomic environment in the developed economies improves, Boards might become less risk adverse. There is currently more clarity around crucial regulations for the industry, such as Solvency II, Global Systematically Important Insurers (GSII) and Dodd-Frank. As Clyde & Co point out: “The uncertainty around these criteria has meant that some companies have been deterred from substantial acquisitions in case that would put them into the GSII category”2. Regulatory transparency might have a positive effect on the number of deals undertaken and, ultimately, completed. While the majority of M&A activity is focused on achieving business growth or expansion into new markets; a recent survey by AONHewitt3 found that “companies do not normally have a well defined strategy to address cultural issues”. From a peak in 2008, the number of insurance deals that have been withdrawn has steadily fallen.

Nevertheless, the data on withdrawn deals is very scarce as companies avoid talking about deal failure. Impediments to acquisitions in the EMEA insurance sector Volatile economic environment Price expectation gap between sellers and buyers More attractive opportunities in other regions Soft consumer demand Concerns about capital adequacy Regulatory uncertainty Difficulty getting funding Other strategic priorities (capital management, expense control, regulatory challenges) Pressure to instead return funds to shareholders through buybacks and dividends 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 Source: Towers Watson 1 Clifford Chance. “European M&A: On the road to recovery?” 2 M&A Activity, A Global Overview, 2009-2013 – Clyde & Co, 2013 Global Insurance – Mergers and Acquisitions 33 . “In domestic deals, cultural differences between two organisations are a soft issue, in international M&A, culture suddenly becomes a very hard issue.” Transaction Risks Companies face many challenges after a deal is completed and there is no a single reason why a deal might fail; nevertheless, the integration of people and culture is one of the most important factors for the success of a deal. Although most organisations successfully identify cultural integration as a top priority, it is still the most common factor for deal failure. Withdrawn Global Insurance Deals (2011 – 2013) 14 12 10 8 6 4 2 0 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Source: Thompson Reuters 3 Culture Integration in M&A, AONHewitt 34 Global Insurance – Mergers and Acquisitions Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 . Global Insurance – Mergers and Acquisitions 35 . © 2014 Grant Thornton UK LLP. All rights reserved. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms.

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