High net worth insurance specialist Pure will deliver annual premium growth of at least 20 percent, potentially doubling its size by 2023, Tokio Marine’s co-head of international business Chris Williams has said.
The executive’s comments to this publication follow the acquisition of Pure – which manages a major reciprocal exchange - by Tokio Marine in a $3.1bn deal that values the company at about 33x its projected 2020 profits. Speaking in an interview, Williams said the new ownership structure would support further expansion of Pure’s portfolio because it will give the HNW player access to Tokio's A++ rating, as well as providing it the opportunity to cross-sell products from elsewhere in the group.
“We see the HNW business growing. That marketplace is generally a market that is quite insurance conscious, and they are buying more coverages than some others,” Williams said.
According to the executive, Pure has demonstrated near-20 percent year-on-year premium growth, which is likely to continue – potentially doubling the size of the carrier’s book of business by 2023 to around $2bn.
“It's a projection but if you consider the 20 percent growth that they've achieved to date with the rating that they have, if you throw the weight of us behind it, I think we will accelerate,” Williams said.
Pure holds an AM Best A rating, and seems likely to be upgraded by two notches following the close of the deal.
Underlining the entity’s projected growth trajectory, Williams said Pure’s reputation, customer loyalty and the potential for growth had justified the high premium paid by Tokio.
“[The deal] gives us access to a very select customer list, who are very loyal,” Williams said, referencing the firm’s 97 percent retention rate. “The customer satisfaction rating is off the charts, it's just very high.”
Tokio Marine Holdings paid $3.1bn for the business, which represents a premium of almost 33x Pure’s projected 2020 profits. “There’s real scarcity value in this type of property – and this is a unique one. [T]here’s a number that today looks expensive, but I think you will look back in three or four years and say ‘that looks like a hell of a deal’,” the executive added.
He also noted that Tokio Marine is likely to reduce Pure’s reliance on reinsurance over time, allowing the Japanese big three player to keep more of the economics of the underwriting.
Speaking to The Insurance Insider, Williams emphasised that the deal would continue a tradition of Tokio Marine acquisitions that sees senior management at the acquired entities remain in place.
Pure’s management - including the company’s president, CEO and founder Ross Buchmueller - is set to stay on with the business the following the deal.
“Ross has still got plenty of runway ahead of him, and I hope he sticks around for a very long time,” Williams added.
HCC’s management team – which included Williams – remained in place following Tokio Marine’s landmark acquisition of the company in 2015.
Senior management also remained after the company’s 2008 acquisition of non-life insurer Philadelphia Consolidated Holding Corp, with founding chairman James Maguire still in place more than a decade after the deal.
Commenting on the culture at Pure, Williams said the long-term nature of the high net worth business written by the company was consistent with the values of the insurance group.
“When we go through these deals, we spend a tonne of time with senior management to make sure we are on the same page. The culture of these guys will fit well with the Japanese culture, which is customer-focussed and oriented towards long-term thinking.”
Williams also said the deal would allow Tokio Marine to make meaningful inroads into the high net worth space and challenge the incumbent market leaders Chubb and AIG.
Responding to questions about Pure’s immediate plans for business development Williams said it would focus on the US market in the near term but consider international expansion at a later date.
The executive added that the deal takes the sum spent on Tokio Marine’s international acquisitions to around $20bn and pushed the group’s earnings from international business beyond the 50 percent mark.
Pure’s current shareholders are Stone Point, which holds 51 percent of the stock, KKR, which owns 34 percent, Axa XL, which holds 10 percent, and management and others, which hold the remaining 5 percent.