Insurance M&A: Global reach, local knowledge

In this short film, Milliman consultants from across the globe address the challenges facing multinational insurers and investment banks looking to engage in cross-border M&A transactions. Topics discussed include cultural and language differences, regulatory variance and complexity, local market considerations, and the importance of an unbiased, experienced actuarial valuation.

Video transcript

Richard Holloway: Currently, M&A is very hot, there's a lot going on, the region is getting more popular. People are looking to invest in some of these fast growing markets, big margins. As a result of that, bids are getting competitive, and prices are going up.

Paul Sinnott: When I first came to Asia, we were doing lots of smaller acquisitions, now we've had some of the biggest transactions in the world.

Stephen H. Conwill: In the last 15 years, Japanese companies have strengthened their balance sheets. Many of them are quite strong now, they have excess capital. So they're now looking to expand abroad, and, in particular, the Japanese companies are looking to invest in Southeast Asia and Eastern Europe.

Wing Wong: These days in Asia, we see quite a lot of new insurance companies buying into an insurance area. So for those companies, despite that they have quite good financial knowledge, life insurance finance is quite different. And so they face a completely different language when they look at the life insurance books.

Rikiya Ino: These companies have a unique risk structure, so in order to analyze these companies, we need a particular knowledge about the variable annuities, including the financial risk management.

Nick Dumbreck: Certainly now, for any transaction, a seller will need to provide some information on what the impact of Solvency II on the value of the company might be. And buyers will be interested in that information, and will be interested in understanding where the residual uncertainty is on how Solvency II will actually pan out.

Laird Zacheis: Cross-border transactions bring a number of interesting issues with them. One aspect of understanding a cross-border transaction is understanding the local regulatory regime, and how many can actually be extracted from the entity over time, in order to achieve the desired value.

Laurens Roodbol: What is important for M&A is that you also do good research upfront, so that you understand what the business cases are from a certain type of player in the market.

Jérôme Nebout: What is important for the client is to have access to consultants that know the local business, and the characteristics of the market, the characteristics of the regulation, and you can't do that if you don't have a strong local use, a strong presence with a strong consultant knowing his market.

Tigran Kalberer: Because of very tight regulations about policy protection and consumer protection. And it's very dangerous to do due diligence, or evaluation, in a market whose profit mechanism and regulations and products you don't understand.

Sanket Kawatkar: Local knowledge is absolutely critical. The more you have worked with several insurance companies in the market, and the more insights you have of products, strategies, operating experience, it adds significant value to the M&A transactions.

Scott Mitchell: On cross-border engagements, clients are looking for a combination of M&A expertise, local market knowledge, local product knowledge, and also language skills to make sure we understand the regulations, the financial reporting standards and just the general documentation that is important for an M&A project.

Richard Holloway: Most of our clients are multinationals, particularly on the buy side. They are the people looking to invest in these markets. Some multinationals have very strong in-house teams, you work alongside them. Some multinationals are happy to delegate a large part of the work to us.

Nick Dumbreck: And it's important to assemble a team for those projects that involve all the competencies necessary to deal with separate regulatory requirements, different accounting treatments and so on. That's one of the strengths that Milliman can bring to a project. We have M&A experts who cover the whole globe.

Anna Berezovskaya: Independence is absolutely crucial for a consulting actuary in the area of M&A. We need to be able to bring an independent perspective on actuarial assumptions, and have them be defendable to a wide-range of parties.

Steven I. Schreiber: Our structure does not allow us to take contingent-type fees, which puts us in a good position to be independent, to be able to give our best advice or best opinion as we analyze a block of business for our clients.

Joy Schwartzman: As an independent firm, we have access to information that even our clients can't ultimately see. They can see the conclusions of our work, but not the underlying details. So our independence is critical.

Stephen H. Conwill: We don't have a need to see the transaction go forward. We really want to see the best result for our client. And in some cases, that may be that the transaction doesn't go forward, that they decide to walk away from a deal. So if there's an issue, if there's a risk, we're going to raise that issue and make sure the client fully understands the dynamics of the transaction.

Sue Collins: The other thing that we bring to the table is tremendous problem-solving skills, that we can work together, we can be their partner, and we can help them with the parts of the transactions that follow all the technical work. The negotiations, the things you might run into in the regulatory process, etc.

Paul Sinnott: We're dealing with the CEOs, the CFOs, business development guys; they're often not actuaries. For us to be in the middle communicating—and often translating—difficult technical aspects into business language is vital for us.

Eric Serant: Communication is very important, but not only between the client and us, it's very important between all the advisors and the clients. There is legal risk, there are the actuarial evaluation issues, and [the consultant] has to find the right balance between all these technical analyses.

Jim Murphy: Our collaborative approach is one of the key differentiating factors between Milliman and our competitors. When we approach a project, we very much try to see it from the client's perspective from the outset. Put ourselves in their shoes and work as if the result of the deal is more important to us than it is to the client.