European Insurer Value Analysis 2021

EUROPEAN INSURER VALUE ANALYSIS Sponsored by APRIL 2021

ACORD and Alchemy Crew recently conducted an extensive analysis of the leading European-headquartered insurers, representing €1.2T+ in annual revenue. The goal of the analysis was to explore the primary drivers of high performance in the European insurance market. • What did superior performers do differently than their competitors? • What were their strategies and tactics, and how did they approach innovation and change? • What can be learned in terms of leadership and culture? The study identified superior performers by applying a proprietary operating cash flow return model, and examined these high-performing insurers across a variety of quantitative and qualitative dimensions in order to answer these questions.

SCOPE & APPROACH The European Insurer Value Analysis 2021 focused on 40 of the largest insurers headquartered in Europe, across all major lines of business. Together, these companies account for €1.2 trillion in annual revenues, including €780 billion in premiums – representing 14% of premiums written worldwide. These insurers were headquartered across 13 European countries, although their geographic scope varied from carriers operating in a single country, to those with global activities. While some focused exclusively on property & casualty or life insurance, three quarters of them wrote both types of lines. 5 P&C 6 Life 29 Multi-Line EUROPEAN INSURER VALUE ANALYSIS 1

The study analyzed financial, strategic, and tactical factors over a five-year period through both quantitative and qualitative methods, including a proprietary value creation methodology. The resulting observations and implications were used to determine the imperatives for high performance. 40 Insurers Quantitative Observations Analysis X Implications 5 Years Qualitative Imperatives Analysis The study evaluated each of the 40 insurers through a proprietary Cash Flow Return metric, achieved by dividing adjusted cash flow by invested capital over the five years studied. Because owners/investors will most likely draw capital away from companies with lower returns than their peers, achieving inferior cash flow returns is not sustainable in the long term. Cash Q4 (Superior Performers) Flow Top 25% ÷ = Cash Flow Q2 & Q3 Return Middle 50% Invested Q1 Capital Bottom 25% The insurers were then segmented into quartiles by Cash Flow Return, with the top 25% considered Superior Performers. EUROPEAN INSURER VALUE ANALYSIS 2

STUDY RESULTS Financial Metrics Although Superior Performers accounted for only 10% of the revenue generated by the 40 insurers studied, their cash flow and returns were disproportionately higher. Five-Year Revenues (Percent of Study Total) 30% 60% 10% Cash Flow vs. Revenue Revenue vs. Invested Capital 44% 44% 38% 37% 38% 37% 25% 24% 25% 24% 17% 17% Cash Flow vs. Revenue Revenue vs. Invested Capital Cash Flow vs. Revenue Revenue vs. Invested Capital Cash flow divided by revenue is essentially a measure of profitability, while revenue divided by invested capital represents how efficiently an insurer leverages its assets. By achieving superior performance across these metrics, the top quartile generated cash flow returns materially in excess of the study average. EUROPEAN INSURER VALUE ANALYSIS 3

Cash Flow Return 30 25 4.0 9.1 16.9 20 5.4 13.3 15 10 5 Bottom 25% Middle 50% Top 25% -5 Superior performers also generated Return on Assets and Return on Equity double the study average. What was the source of the insurers’ revenue? For Superior Performers, the vast majority was from premiums written – something that was not true of all the organizations studied. Premium as Percentage of Total Revenue 85% 69% 45% High-performing insurers generated 85% of their revenues through underwriting, as opposed to investment or non-insurance products and services. Among the bottom tier, on the other hand, premiums were responsible for less than half of revenue. EUROPEAN INSURER VALUE ANALYSIS 4

One metric where Superior Performers seemed to lag behind many of their competitors was in revenue growth. However, this does not tell the full story. Five-Year Growth (CAGR) 14.3% 6.9% 3.8% 4.3% 3.0% 1.5% Revenue Cash Flow Revenue Cash Flow Revenue Cash Flow While the bottom quartile increased revenues at a much higher rate than their competitors, this resulted in the poorest cash flow growth. Superior Performers, on the other hand, grew thoughtfully – their controlled revenue growth resulted in cash flow CAGR that was twice the study average. This performance did not go unrecognized by capital markets. While the publicly traded insurers in the other cohorts delivered total shareholder returns close to the study average, the Superior Performers achieved substantially higher returns. Total Shareholder Return 53.6% 45.7% 47.3% Study 46.7% Average 0 10 20 30 40 50 EUROPEAN INSURER VALUE ANALYSIS 5

Organizational Scale, Scope & Structure When viewed as a group, there were striking differences between the characteristics of the Superior Performers and their less successful competitors. When segmenting the 40 insurers into quartiles by scale – represented by revenue – and comparing this to performance, a clear pattern emerges. Smallest Revenue Largest Q1 Q2 Q3 Q4 Perhaps surprisingly, smaller companies seemed to have an advantage over their larger counterparts. Was this also reflected in the insurers’ geographic scope? Geographic Scope Single-Country Regional Multinational 50% 10% 40% 15% 40% 45% 20% 60% 20% While most of the Superior Performers were most likely to limit their operations to a single country – commensurate, perhaps, with their smaller scale – nearly as many fell into the widest scope category. They clearly, however, avoided the middle ground – regional operations within a small group of neighboring countries. This regional scope was dramatically overrepresented among the bottom quartile. EUROPEAN INSURER VALUE ANALYSIS 6

Finally, there was a significant difference between Superior Performers and the other cohorts with respect to public vs. non-public ownership. Ownership Public Non-Public 80% 20% 90% 10% 90% 10% Top performers were twice as likely as others to have non-public ownership structures. This presents a strong argument for the value proposition of mutual carriers. Selected Superior Performer Characteristics: Organizational Scale, Scope & Structure Small- to mid-sized More likely to focus on a single country More likely to be non-publicly owned EUROPEAN INSURER VALUE ANALYSIS 7

Strategy & Tactics Superior Performers also demonstrated clear preferences in lines of business, strategic intent, and distribution channels. Lines of Business Property Life Multi-Line & Casualty P&C Focus Life Focus Superior Performers were more likely to write P&C lines, either exclusively or as part of a multi-line strategy. The bottom quartile, on the other hand, was much more likely to write life policies. The 40 insurers were also classified according to their strategic intent, corresponding to four fundamental areas of strategic focus: • Operational Excellence - efficiency-driven price competition • Customer Intimacy - superior interaction & customer experience • Product Leadership - unique and/or higher-quality offerings • Innovation - discontinuous change and speed to market Some insurers employed a Composite strategy – executing simultaneously on more than one strategic focus – while others failed to adhere to a clear and coherent strategy at all. Strategic Intent Composite Operational Customer Product Innovation Unclear Excellence Intimacy Leadership EUROPEAN INSURER VALUE ANALYSIS 8

Superior Performers are the only cohort likely to execute a Product Leadership strategy, though they also find success with Customer Intimacy and Composite strategies. The bottom quartile, unsurprisingly, are the most likely to lack a clear strategy, and the least likely to attempt a Composite strategy. The study also examined the primary distribution channels utilized by the 40 insurers. Distribution Channel Independent Agent Exclusive Agent Multi-Channel 30% 30% 40% 10% 15% 75% 10% 50% 40% Superior Performers were three times as likely as their competitors to leverage independent agents as their primary distribution channel. The top performance tier was also distinguished by a materially higher rate of M&A activity. M&A Activity Minimal Moderate Material Acquisitions 30% 40% 30% Divestitures 90% 10% Acquisitions 50% 40% 10% Divestitures 90% 5%5% Acquisitions 50% 40% 10% Divestitures 80% 20% Superior Performers showed a proclivity for not only more acquisitions, but more divestitures as well – they used M&A as an opportunity for optimizing their portfolios. EUROPEAN INSURER VALUE ANALYSIS 9

The final set of strategic and tactical characteristics evaluated were around innovation and change. These factors included: • Maturity of digital capabilities • InsurTech activity • Platform & ecosystem participation Superior Performers, analyzed along these dimensions, were largely on par with the study average. The bottom quartile, however, were significantly more likely than the average to be digital laggards, engage in minimal InsurTech activity, and eschew platforms and ecosystems. While keeping up with technological innovation was no guarantee of top-tier performance, failing to do so correlated strongly with poor performance. Clearly, digitization is a necessary (but not, on its own, sufficient) prerequisite of success. Selected Superior Performer Characteristics: Strategy & Tactics Favor P&C lines Focus on Product Leadership, Customer Intimacy, or Composite strategy More likely to leverage independent agents Optimize portfolio through M&A Keep pace with technology EUROPEAN INSURER VALUE ANALYSIS 10

Leadership & Culture The 40 European insurers were also examined across a number of dimensions involving leadership, governance, culture, diversity, and decision-making. Once again, the Superior Performers demonstrated several skews from the study average. Governance Structure Centralized Decentralized Federated 90% 10% 70% 20% 10% 80% 10% 10% Superior Performers were more likely to adopt a Centralized governance model, and eschewed a Federated structure entirely. CEOs at the helm of companies in the top performance tier were more likely to be promoted from within the organization than recruited externally. CEO Recruitment Internal External 90% 10% 70% 30% 80% 20% The typical CEO profile among Superior Performers also tended to include: • Business/technical experience, rather than sales/marketing • Insurance-specific background, rather than outside the industry • Five- to ten-year tenure in role — long enough to understand legacy, but new enough to be open to change • High approval rating from employees EUROPEAN INSURER VALUE ANALYSIS 11

In addition to CEO approval, internal employee ratings of the Superior Performers were higher than average across most metrics, including: • Culture & values • Compensation • Career opportunity • Willingness to recommend as employer The sole employee rating where Superior Performers fell short was on diversity and inclusion. Yet, these companies were more than twice as likely as their competitors to have material levels of diversity on their board of directors. Board Diversity Minimal Moderate Material 30% 20% 50% 15% 65% 20% 40% 50% 10% The discrepancy between high board diversity and low employee ratings on diversity and inclusion at these companies is interesting, and not readily explicable. It is possible that the overall positive opinion that the employees have of the organization leads them to hold it to a higher standard, relative to their more disillusioned peers at other insurers. Selected Superior Performer Characteristics: Leadership & Culture Centralized governance Internal promotion of CEO with insurance business/technical background High levels of diversity on board of directors EUROPEAN INSURER VALUE ANALYSIS 12

EMERGING IMPERATIVES Certain key imperatives emerged when synthesizing the insights around the Superior Performers and their attributes and activities. While there is of course no single, universal secret to success across markets, these were recurring, dominant drivers of high performance. Differentiated, valued Ongoing, selective Culture and leadership products that fulfill a optimization of portfolio focused on core capacity market need. and capabilities. and competency. Superior Performers Superior Performers Superior Performers often pursued a Product balanced long-term maintained a culture of Leadership strategy, investment in capabilities excellence throughout either as a sole focus or and short-term earnings. every level of the as part of a Composite By deploying defensible organization. Tending strategy. They focused on models with an eye toward to promote from within, high-value opportunities, flexibility and adaptability, they made it a priority focusing on lines of they maintained the to attract, develop, and business and geographies freedom to be thoughtful retain talent that was where their offerings were and selective in their diverse, motivated, and most differentiated and revenue growth, digital highly skilled in core attractive to consumers. enablement, ecosystem insurance activities. They leveraged the participation, and M&A They also promoted an independent agent activity. This allowed them enterprise-wide culture distribution channel to to leverage their assets that enabled not only most effectively place efficiently and effectively, incremental change, but these products in the generating high returns. also substantive, behavior- hands of high lifetime value based transformation. customers. More details on the European Insurer Value Analysis 2021, as well as other studies, white papers, and strategic reports, are available free of charge to ACORD members. Please visit www.acord.org/research or contact us at [email protected]. EUROPEAN INSURER VALUE ANALYSIS 13

ABOUT ACORD ACORD is the global standards-setting body for the insurance industry. For 50 years, we have been an industry leader in identifying ways to help its members make improvements across the insurance value chain. ACORD facilitates fast, accurate data exchange and efficient workflows through the development of electronic standards, standardized forms, and tools to support their use. ACORD currently engages more than 36,000 participating organizations spanning over 100 countries, including insurance and reinsurance companies, agents and brokers, software providers, financial services organizations, and industry associations. ACORD maintains offices in New York and London. Learn more at www.acord.org. ABOUT ALCHEMY CREW Alchemy Crew is a venture validation & commercialisation lab supported by a global ecosystem. We take a well-curated problem and transform it into a digital solution leveraging a network of global emerging tech ventures and knowledge from multi-disciplinary experts. Merging both, we create long-term sustainable impact through authentic execution and the sharing of our differentiating learnings. For more information, please visit www.alchemycrew.com. ABOUT CGI Founded in 1976, CGI is among the largest IT and business consulting services firms in the world. We are insights-driven and outcome-based to help accelerate returns on your IT and business investments. In all we do, our goal is to build trusted relationships through client proximity, providing industry and technology expertise to help you meet the needs of your customers and citizens. For more information, please visit www.cgi.com. © 2021 ACORD Corporation. All rights reserved. The ACORD name and logos are among the registered trademarks and trademarks of ACORD Corporation in the United States and other countries. Other trademarks cited herein are the property of their respective owners. All data in this report are sourced from S&P Global, Glassdoor, company filings, and 2021 ACORD / Alchemy Crew analysis.

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