Mercer Capital’s Insurance Industry newsletter is a quarterly publication providing perspective on valuation issues pertinent to insurance brokers, underwriters, and other industry professionals. Each issue includes a segment focus, market overview, mergers and acquisitions review, and more.

1. Value
Focus
© 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 1
Insurance Industry
Third Quarter 2014
Stocks Move Higher with the Market. After lackluster returns in the first quarter, insurance stocks
rebounded in 2Q14, with the SNL Underwriter index posting a 4.6% return and the Broker Index
advancing 4.1%, relative to the S&P 500’s 5.2% increase. Life & Health stocks were lifted by news
of Toyko-based Dai-ichi Life Insurance’s June 3rd agreement to purchase Protective Life Corp. for
roughly 1.3x book value and 14.2x LTM earnings. While most sub-sectors moved in line with the
overall market, mortgage & financial guaranty stocks dipped 5.4% amid worries that Puerto Rico’s
debt crisis could trigger losses for financial guarantors MBIA and Assured Guaranty.
Reinsurance Pricing Pressure. Reinsurance rates remain under pressure from increased
competition and ample capacity from existing players and non-traditional sources. These forces led
to declines in renewal pricing of 10%–20% in June, according to multiple sources. While detrimental
to reinsurers, the aggressive pricing is a boon to primary lines insurers, who have been able to
secure additional coverage and better terms for less cost. Renewal pricing in the primary market
continues to increase modestly across most lines of coverage, though the rate of increase is slowing.
Valuation Multiples Holding Steady. As shown in the attached charts of historical and current
pricing by segment, price/book multiples of the SNL Indices were generally flat from the first to
second quarter of 2014. On the basis of price-to-tangible book value, the P&C Index was 1.62x
at the end of June while the Life & Health Index stood at 1.20x. On the Insurance Broker Index,
the EV/EBITDA multiple (11.7x) has trended downward from 11.8x at the end of Q1 and 12.2x at
year-end 2013.
M&A Deal Notes. While the volume of underwriter transactions continues to slow (just 13 announced
deals in Q2, down from 16 in the prior year), several of quarter’s transactions were notable. As
mentioned above, Dai-ichi Life Insurance agreed to acquire Protective Life Corp. in early June
for approximately $5.6 billion. The $70/share price represents a 20% premium to the prior day’s
closing price. Validus Holdings emerged as the leading bidder for Western World Insurance Group,
which culminated in a $690 million deal announced on June 23. According to SNL Financial, reports
indicated that at least six other players had bid for the U.S. excess and surplus lines carrier. The
purchase price represented 1.6x reported book value (or about 1.3x adjusted book after reserve
releases and other adjustments). On the insurance broker side, deal volume increased 21% to
51 announced deals in the second quarter (as of this writing), although most the transactions were
relatively small, and no deal price exceeded $25 million.

2. © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 2
SNL Insurance Broker and Underwriter IndicesSNL Insurance Underwriter Segment Indices
Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014
60.0!
80.0!
100.0!
120.0!
140.0!
160.0!
6/28/13!
7/28/13!
8/28/13!
9/28/13!10/28/13!11/28/13!12/28/13!
1/28/14!
2/28/14!
3/31/14!
4/30/14!
5/31/14!
6/30/14!
June28,2013=100!
S&P 500: 24.61% ! SNL Insurance Multiline: 26.83% !
SNL Insurance L&H: 27.85% ! SNL Insurance P&C: 14.56% !
SNL Reinsurance: 16.66% ! SNL Managed Care: 30.63% !
SNL Title Insurer: 35.79% ! SNL Mortgage & Finl Guaranty: 14.28% !
90.0!
95.0!
100.0!
105.0!
110.0!
115.0!
120.0!
125.0!
130.0!
135.0!
6/28/13!
7/28/13!
8/28/13!
9/28/13!10/28/13!11/28/13!12/28/13!
1/28/14!
2/28/14!
3/31/14!
4/30/14!
5/31/14!
6/30/14!
June28,2013=100!
SNL U.S. Insurance Broker: 27.71% !
SNL U.S. Insurance Underwriter: 21.75% !
S&P 500: 24.61% !
M&A Activity Recap: Insurance UnderwritersM&A Activity Recap: Insurance Brokers
Q1! Q2! Q3! Q4! YTD at 6/30!
2011! 24 ! 18 ! 32 ! 31 ! 42 !
2012! 20 ! 26 ! 27 ! 20 ! 46 !
2013! 23 ! 16 ! 25 ! 11 ! 39 !
2014! 17 ! 12 ! 0 ! 0 ! 29 !
0 !
20 !
40 !
60 !
NumberofTransactions!
Q1! Q2! Q3! Q4! YTD at 6/30!
2011! 77 ! 59 ! 72 ! 83 ! 136 !
2012! 64 ! 71 ! 56 ! 138 ! 135 !
2013! 41 ! 42 ! 53 ! 76 ! 83 !
2014! 75 ! 51 ! 0 ! 0 ! 126 !
0 !
20 !
40 !
60 !
80 !
100 !
120 !
140 !
160 !
NumberofTransactions!

3. © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 3
Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014
SNL Life & Health IndexSNL Multi-Line Index
SNL Property & Casualty Index SNL Reinsurance Index
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 12.2510.2121.617.685.1810.800.10
Price / Book 1.131.091.140.660.560.710.72
Price / Tang. Book 1.331.262.161.140.760.810.74
0.00
0.50
1.00
1.50
2.00
2.50
0.00
5.00
10.00
15.00
20.00
25.00
Price/Book
Price/Earnings
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 17.3914.2416.5514.748.3511.710.14
Price / Book 1.151.201.270.810.811.131.21
Price / Tang. Book 1.201.231.290.710.771.001.31
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Price/Book
Price/Earnings
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 14.6413.4814.8112.8415.9512.700.18
Price / Book 1.321.311.381.121.121.131.09
Price / Tang. Book 1.621.611.651.381.451.401.30
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Price/Book
Price/Earnings
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 9.518.6811.556.9822.939.430.24
Price / Book 1.011.001.060.830.820.841.11
Price / Tang. Book 1.041.031.090.850.850.871.44
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
0.00
5.00
10.00
15.00
20.00
25.00
Price/Book
Price/Earnings

4. © 2014 Mercer Capital // www.mercercapital.com // Data provided by SNL Financial 4
Mercer Capital’s Value Focus: Insurance Industry Third Quarter 2014
SNL Title Insurance IndexSNL Managed Care Index
SNL Mortgage & Financial Guaranty Index SNL Insurance Broker Index
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 15.1914.8013.929.8910.728.660.11
Price / Book 2.152.102.021.511.641.341.42
Price / Tang. Book 4.504.624.563.363.334.223.43
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Price/Book
Price/Earnings
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 23.6917.3414.449.3812.9610.910.28
Price / Book 1.441.441.531.220.890.851.00
Price / Tang. Book 2.002.703.232.631.661.622.01
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
0.00
5.00
10.00
15.00
20.00
25.00
Price/Book
Price/Earnings
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
Price / LTM EPS 17.8112.476.240.553.563.340.00
Price / Book 1.851.981.940.660.670.850.89
Price / Tang. Book 1.291.391.980.660.670.860.89
0.00
0.50
1.00
1.50
2.00
2.50
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Price/Book
Price/Earnings
11.711.8
12.2
9.69.3
10.4
8.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
6/30/143/31/1412/31/1312/31/1212/30/1112/31/1012/31/09
EnterpriseValue/LTMEBITDA

5. Mercer
Capital
Insurance Industry Services
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Industry Segments
Mercer Capital serves the following industry segments:
• Agencies
• Independent insurance brokers and agents
• Bank-owned agencies
• Retail, wholesale, and MGAs
• Ancillary
• Third-party administrators
• Claims adjusters and other service providers
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• Nationwide client base
• Agency clients range from single office agencies to top-10 public brokers
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Contact a Mercer Capital professional to discuss your needs in confidence.
Lucas M. Parris, CFA, ASA
901.322.9784
parrisl@mercercapital.com
Travis W. Harms, CFA, CPA/ABV
901.322.9760
harmst@mercercapital.com
Mercer Capital
5100 Poplar Avenue, Suite 2600
Memphis, Tennessee 38137
901.685.2120 (P)
www.mercercapital.com
• Underwriters
• P&C, life & health, and managed care
• Reinsurance
• Captives and risk retention groups