PURE Sold To Tokio Marine – 2019
PURE has agreed to terms on the sale of Privilege Underwriters, Inc (PUI), the parent company for the attorney-in-fact managing the reciprocal exchange on behalf of PURE members. Quick facts of the deal:
- The transaction is subject to regulatory approval
- The closing is targeted for the first quarter of 2020
- Tokio Marine is a global insurer with a 140 year history and $200B balance sheet
- Tokio Marine’s main subsidiary insurers boast an “A++ (Superior)” rating from AM Best
- Ross Buchmuler, CEO of PURE, will continue to run the company which will not be operated as a subsidiary of Tokio Marine’s HCC Insurance Holdings, Inc
You can read the original press release here: Link to PRS Newswire
Here is the release and official statement on Tokio Marine’s site: Link to Tokio Marine Statement
LETTER FROM PURE CEO
ROSS BUCHMUELLER
Dear Fellow PURE Member,
I am pleased to share the news that Privilege Underwriters, Inc., the parent company of the Attorney-in-Fact for PURE, has agreed to become a member of Tokio Marine Group, one of the largest and most respected insurance organizations in the world. Here you will find the recent press announcement.
Tokio Marine is a large, global insurance group with a history of more than 140 years and over $200 billion in total assets and nearly $50 billion of total revenues. Tokio Marine has had repeated and sustained success in the United States with member companies including Delphi Financial, Philadelphia Consolidated and HCC Insurance Holdings. We are proud to join such a prestigious group of insurers.
We have been particularly impressed with Tokio Marine’s commitment to a purpose-driven culture and long-term focus. Their guiding principles are to be a “Good Company” and to achieve that by looking beyond profit and to act with integrity for the benefit of their customers, business partners, and society. As described above, they have a history of acquiring and supporting entrepreneurial companies like ours. They aim to empower their people and inspire engagement and passion in all of their employees. Lastly, their philosophy stresses the importance of delivering on their commitments to all stakeholders. I believe there is strong alignment with the culture of PURE.
I led the formation of our company in 2006, along with Jeff Paraschac and Martin Hartley. The three of us are excited to continue to serve as leaders of the PURE Group into the future; and we expect to maintain the entrepreneurial spirit and empathetic culture that has guided the first fourteen years of our existence. Today, we are blessed to work alongside 800 of the most talented, passionate and hard-working professionals in the industry. We anticipate continuing the growth and development opportunities for our team.
One of the greatest benefits for policyholders and employees is to have the confidence that, in the future, Tokio Marine will stand behind the PURE Group of Insurance Companies. Tokio Marine’s major subsidiaries have financial strength ratings of “A++ (Superior)” from A.M. Best. Following the announcement of the acquisition, A.M. Best released this press release, placing the PURE Group of Insurance Companies rating under review, with positive implications. The transaction, which is subject to regulatory approvals and other customary closing conditions, is expected to close in the first quarter of 2020.
The PURE membership will remain the center of our attention. We expect to have more resources to serve you, more and better products and services, and most certainly, greater financial strength. I very much appreciate your support of PURE and look forward to serving you for many years to come.
Sincerely,
Ross J. Buchmueller
President & CEO
Thoughts on Tokio Marine’s Acquisition of PURE
Overall, this deal speaks to the solid and stable future of PURE. The private equity which took the risks in starting a new player in the tight-knit high private client market, get to reap the financial reward of their investments. Meanwhile, Tokio is able to expand its portfolio into this space and bring an even larger balance sheet to the table.
So what else should we look at?
How Does PURE’s Sale Affect Policyholders?
PURE Members (akin to policy holders in a traditional insurer) will not see much immediate effect. The attorney-in-fact which was sold will continue to manage operations as usual.
In fact, since Tokio Marine is purchasing this insurer to add to the competencies within its portfolio, it is unlikely they will do much more than help support the leadership to continue growing an award winning and successful insurer.
The primary conservative thought I have is,with this much financial strength and nearly 15 years of growth behind it, PURE is unlikely to remain flexible in taking on higher risk exposures for the sake of growth, even within its PURE Programs division.
As a PURE member will I get a share of the profits of the sale?
No, the reciprocal itself (which members own) was not sold. Only the attorney-in-fact which the reciprocal pays to manage the insurance operations.
Who Will Run The Company?
PURE will continue to be run by Ross Buchmueller, founder and CEO of PURE Group. The executive management team will also remain intact. The only real change will be that PURE is going to be operated as a division or subsidiary within Tokio Marine’s holdings.
Overall Thoughts On The Sale Of PURE
PURE will continue to be a powerhouse in the space and now has the financial backing to expand. We previously stated that PURE could stand to bolster its worldwide capabilities and farm & ranch solutions. This could be the catlyst which allows that to happen.
Where does the acquisition of PURE leave the Private Client Market?
Since 2015, the private client space (aka high net worth insurance market) has been sucked into a vacuum. Chubb has become the largest insurer in the world by merging with ACE and its prior acquisition Fireman’s Fund. AIG continues to restructure, Cincinnati is gaining traction, and Vault is growing in a very PURE-like way.
How Does This Affect Chubb
Very little impact to the way the largest insurer in the world will operate. PURE does compete directly with its private client group but is still a fraction of size. Chubb will continue doing what Chubb does best–thoughtful underwriting to provide sustainable solutions for the world’s most successful families.
How Does This Affect AIG
AIG is a different story. A former juggernaugt in the space, AIG has been involved in retooling its operation for a decade and the private client group is no exception. While the private client practice has historically been profitable, I could foresee a scenario where the newly strengthened PURE looks to purchase the renewal rights to AIG’s Private Client Group.
How Does This Affect Cincinnati
Cincinnati is still carving its niche within the space and will likely not worry much about this acquisition. They are coming into their own so far as market apettite, loss experience, and underwriting focus. We will look for them to continue growing with little need to pivot in light of the PURE deal.
How Does This Affect Vault
Vault may be the second biggest winner in this deal, behind PURE Group’s investors. The reason–Vault is building its company in a similar fashion to PURE. It is also a reciprocal exchange, it also started with Florida and coastal risks, and is now expanding to other States.
With a $3.1B deal catching the eye of every investor globally, this could help Vault in securing additional capital or strategic partners.
Similarly, with the success PURE has had in its reciprocal structure, more clients may look to give Vault a chance to provide service. Particularly as PURE will likely tighten up the reigns on very high risk exposures.
Analysis of the Financials Behind PURE’s Acquisition
Certainly, a 33x multiple based off of forecasted profit will seem excessive by any measurement. However, Tokio Marine certainly sees this as an investment in future revenue by securing a carrier who has large share of an $80 billion industry niche.
Compared to Peer Group
Looking at the 2018 income for peers within the private client group space would be the best proxy. Though the parent companies do not always disclose profitability by division. So, for consistency, let’s look at total revenues of competitors based on the following criteria:
- Private Client Division
- Global footprint
- Balanced portfolio of insurance operations (personal/commercial/benefits/etc)
Using this methodology we should compare the dealt to Chubb and AIG. For good measure, I will include Lloyd’s of London as they provide global solutions for many clients who would be target market for Chubb and AIG. We will also include State Farm as it has the majority of US Market share, for which the private client insurance industry keeps trying to penetrate.
Chubb
World's Largest Insurer
Chubb finished 2018 with an approximate $3.7 billion of net profit.
AIG
World's 2nd Largest Insurer
AIG reported 2018 net profit of approximately $3.2 billion.
Lloyd's of London
Global Syndicate for High Risk
Lloyd’s finished 2018 with a combined ratio over 100%, thus contracted. It reported £2.822 billion (appx $3.48 USD) in net assets.
State Farm
Largest Insurer in U.S.
State Farm reported approximately $6.35 billion of net profit in 2018.
When considering that PURE was on target to report $1 billion of net income but is not in the top 10 U.S. insurers despite rapid growth. This seems to be a pretty savvy deal for Tokio Marine. Particularly with Tokio having reported the U.S. equivalent of $2.63 billion in net profit for FY2018. This purchase does not affect its financial strength nor tie up assets needed for operation.
How Bullish Is Tokio Marine on This Deal
Ultimately, PURE would cash-flow out enough profit to cover debt service. However, with Tokio agreeing to an all-cash deal, this speaks volumes to their belief that the business will not only remain profitable but capture additional market share along its journey.
About the author
Bob
Strategist | Advisor | Thought Leader
Bob Raymond manages risk for many of the country’s preeminent families and family offices. He is an outside director, educator, and the founder of privateRISK.