OPERATIONS AFTER THE MERGER

OPERATIONS AFTER THE MERGER

SPEAKERS • Moderator • Chris Murumets, Chief Executive Officer, LOGiQ3 • Speakers • Michael Coe, Associate Vice President, Chief Administrative Officer, Metropolitan Life • Tom Hartlett, Chief Administrative Officer, Scor Global Life • Chris Heeren, Vice President, Retrocession, Hannover Life Reassurance Company of America

AGENDA • The Lifecycle • Pre - Due Diligence • During - Integration • Post - Steady State • Lessons Learned • Question & Answer

Day 0 - “Shock” You receive a confidentiality agreement and plan for long hours & travel. The clock is running for the press release.

Day 1 – “Pre” – Rumours… Confirmation… Due Diligence (order may vary)

Due Diligence • Teams are formed for Underwriting, Administration, IT, Valuations, Financial & Accounting, & Tax. • Data room is established and IT access granted. • Due Diligence of business is reviewed and analyzed – Valuation of the balance sheet is completed. • Price of the business is determined. **Potential PGAAP adjustments are worked in** • Negotiation and letter of agreement is signed. • Regulatory matters are resolved • Press announcement is made and employee town hall meetings are held.

Due Diligence (cont’d) • Due diligence becomes an immediate priority for some individuals and you must pull together information with help from others who are not aware and can’t be told the reason for the requests • Day to day work must continue in addition to due diligence work so the work doubles for some resources • Timelines for due diligence work usually is aggressive, 3-9 months depending on the size and type of acquisition, lots of late nights • Some internal initiatives may have to stop and the reason for stopping cannot be conveyed to staff until after the acquisition, giving reasons for the change in direction can be challenging

Due Diligence (cont’d) • Other internal initiatives must continue and possibly have to be accelerated if they are key to the acquisition. Typically these are projects that could have a material financial impact on the organization (e.g. backlog of accruals, unprocessed business, legal issues with treaties/claims). • You may be required to pull metrics together for due diligence purposes that were not previously tracked internally • When the due diligence process is not public, many offsite meetings occur and special project names are created to keep the process confidential

As the Potential Acquirer… • Develop models using data room information to provide an initial assessment • Determine any potential business lines that may be outliers to acquirer’s goal in buying the business(getting business on lines not interested in) • Full disclosure on current business on the books: treaties, financial results, quality of staff( including bios of senior and middle level mgmt.) • Open communication with staff wherever possible; rumors are out there anyway and in most instances not accurate(or completely accurate).

Creating A Project Name: What would you guess Due Diligence project code names have generally been created after? • Acronyms • Movie Characters • Local characteristics of company be acquired • Movie Titles • Greek Gods • Anything

Question - Secret Code names? When we purchased Travelers the project name was: A) Project “Umbrella” B) Project “Tower” C) Project “Bank Heist” D) Project “Pilgrim”

Secret Code names? What is the code name? When we purchased John Hancock Group Life the code name was: A) Project “Independence” B) Project “Flying Glass” C) Project “Signature” D) Project “Patriot”

The Acquiree’s View • An acquisition usually starts as a rumor • Some acquisitions are made public during the due diligence process • Others are not public until the deal is complete

As the Potential Acquiree… • News or rumors begin (perception is reality): • Runoff vs. sale • Location change possible depending on acquirer involved • Due diligence data room created • Need to run develop reporting to provide enough details for evaluation • Treaties and treaty summaries • Historical Financial reports – stat and gaap • Business Plan may be included – projections for future results in a runoff state • Mgmt communication is key – keeping operations stable in a time of uncertainty a must to keep operation attractive for an acquisition(focus on retention of key persons specifically)

During – Integrationaka:

Day 2 – Integration Begins • A new major priority is on the table – integration must be completed by XX/XX/XX. • Learn from the past – Travelers in 1995 & 2005, New England in 1997, GenAm in 2000, John Hancock Group in 2003, and TIAA-Cref LTC in 2004. • Existing priorities must be reassessed and ranked. Line managers are key. • Must understand the direct IT plans and integration before the reinsurance systems are reviewed. Ensure to align these goals. • People resources are developed & dedicated for integration functions and ongoing activities. “Top talent needs to be on both teams.” • “Creating a stable environment during uncertain times.” Communication is key.

Integration • Discovery phase commences with both groups getting together to learn about each other’s staff, processes, systems, and functions by location • Discovery process requires lost of travel, initial phase over a month’s time with subsequent follow up trips

Integration (cont’d) • Discovery process requires both organizations to pull information together and summarize for presentation purposes, significant time commitment here • Generally Transition Service Agreements are established to manage the movement of business from one organization to another

Discovery Question Which approach to discovery do you think is the most effective? • Conference Calls • Video Conferences • Face to Face Meetings

Integration (cont’d) • If not all the business is acquired then Administration Service Agreements may be put in place if acquired company manages business for previous organization • Duration of integration projects has generally been one to two years to complete depending on complexity and state of the business being integrated • Evaluation takes place on business processes from both organizations. Generally the most efficient, cost effective and financially accurate processes are adopted.

Technological Impact • System and process evaluation of both sides can take time if you follow a complete package evaluation project managed type of approach. Management can just make a call to shorten this evaluation. • Typically system enhancements and projects that were in flight are put on hold until decisions are made on what systems will survive • A decommissioning or sun setting schedule is created for systems not selected to be used going forward. • There can be a lot of passion around these decisions as many individuals have put significant time and effort into the current systems and process

Technological Impact (cont’d) • In some cases the acquired company makes significant technological advances when integrated with the acquiring company, it can also work the other way.

People Impact • Staff become uneasy with initial rumors of being acquired, then escalates when officially made public • Worry about their current job, their future, will we have to move, how will I fit in? • When it becomes official, you need to manage staff’s concerns and attempt to mitigate as much as possible so key individuals don’t leave the company (lots of time and effort needed here)

People Impact (cont’d) • Some folks will leave the organization anyway due the stress of the unknown regardless of the effort by the organization to keep them informed and financially rewarded • Your will be asking people to do more work in total, maintaining the day to day in addition to the due diligence & integration work. • There is always the potential of not having a job at the end, motivation can be difficult. • Regardless of what you do to manage people’s fears and concerns, going through this process takes a toll on all employees

Question What approach do you think works best for retaining staff during and acquisition? • Communicate next to nothing until the deal is public • All company meetings • Frequent meetings between managers and their staff • Retention bonuses Having been acquired three times we have tried 1, 2&3, and 2-4. The latter being the most effective.

Steady State (the elusive)

Day 3 – Steady State Drive Critical elements are needed: • Complete inventory of treaties needs to be obtained and centralized. • Treaty negotiations are centralized and implemented into tracking database. • Centralize administration functions – premium and claims billings. • Coordinate goals of the Underwriting & Claims Department with Reinsurance Administration. • Knowledge transfer and retention of workforce. • Balance multiple priorities with limited resources. • Review systems to treaties - “peel the onion” • Balance Sheet Values are identified for potential PGAAP adjustments. • Develop sub-ledger plans to integrate reinsurance into financials. Store financial history. • SOX integration and audits need to developed into overall control review .

Day 4 – “Movement Home” • Begin the implementation into legacy systems – align with direct systems. • Potential system enhancements from technologies acquired. • Allow reinsurer input and audit prior to integration. • Knowledge transfer and people training are ongoing – “Critical Asset” • People who leave and the people who stay. • Review block for potential retained exposure. • Review blocks for potential recapture.

Question How long until steady state? • < 1 year • 1-2 years • >2 years Answer: All of the above

Lessons Learned

Benefits of being acquired • Going through this process allows resources to step up and demonstrate their knowledge, capabilities, and commitment • An opportunity to retain key resources and manage out non performers • Generally the best of both organizations are brought together which creates a stronger organization from a people, technology, and process perspective • Some outstanding projects get completed sooner than planned because it was a requirement of the acquisition • Metrics pulled together during due diligence can be institutionalized for future unit cost analysis, management reporting, and better financial management

Technology – Choosing a Platform • Typically using the acquirer’s technology platform may have been a foregone conclusion. However, a disservice to the acquirer is to make a blanket assumption that their system(s) are best; utilizing the best platforms where applicable will prove the best long term solution for the company. Other considerations include: • Global system vs. local market applications (i.e. TAI) • Cross functional systems (all-in ones) vs. less

Technology – Historical Data • Financials can be migrated from old to new system but this can be labor intensive and costly. Typically a “legacy view” is created for archival of data from non selected systems. • Do not over engineer these legacy views as they are initially used heavily but use diminishes over time, generally after the first year.

People Impact • Open communication as to what’s going on(acquisition or move), why, when, the basic information. • Questions will surely follow • Answer everything you can • If you don’t know the answer, tell them that! • Determine staffing strategy • Acquisition • Determine whether all staff from acquired company will be offered positions. • Determine how new organizational structure based on acquisition; identify and communicate as soon as finalized. • Relocation • See Case study…..

Manage the “Big Picture” • Someone has to be responsible to manage enterprise wide impact • Don’t assume it will happen…. It won’t

Manage Expectations • Time, cost or quality are only options – what’s the driver? • Duration varies based on complexity, acquisition vs. divestiture • Assume it will take longer than initially expected

Strategic move of Operations Area Across US • Case study -A reinsurer decides to consolidate locations • Determine if organizational structure changes are necessary; identify if reporting relationships among departments need modification. • Determine whether any key functions may need consulting/temporary resources until new staffing firmly in place at final office location. • Determine key individuals to offer relocation to new location. • Identify positions to hire at new location based upon success(or failure) of relocating key employees. • Build out new team in new location • Knowledge transfer of existing employees to new employees is key. • Ensure all records are moved to new location • Inform your clients and retrocessionaires of the changes(location, staff, reasons why, etc.)

Bonus Question What year was Snoopy born? • 1950 • 1952 • 1959 • 1960 Snoopy, whose fictional birthday has been established as October 4, made his first appearance in the strip of October 4, 1950, two days after the strip premiered. He was first identified by name on November 10. Schulz was originally going to call him "Sniffy" (as described in the 25th anniversary book), until he discovered that name was used in a different comic strip. He changed it to "Snoopy" after remembering that his late mother Dena Schulz had commented that if their family were ever to acquire a third dog, it should be called Snoopy, an affectionate term in Norwegian (the actual term is "Snuppa").

OPERATIONS AFTER THE MERGER