* executives at institutions considering purchasing or selling insurance operations;
* investment bankers involved in insurance transactions; and
* students of the profession.
The paper begins with a discussion of various types of actuarial analysis and the role of the external actuary. Some time is spent discussing the key elements of actuarial models, which are important tools developed to support actuarial analysis.
The next section deals with various considerations of the sale process from both the buyer’s and the seller’s perspective. The preparation of a company for sale, the bidding process and the rigors of due diligence are also discussed. The importance of teamwork throughout this process cannot be overemphasized.
After walking through the sale process, the development of economic and actuarial assumptions is examined in detail, including sources of data and various techniques for developing assumptions. Important considerations in specific markets are presented where appropriate. Methodology and modeling considerations for specific lines of business, including individual life, annuity and loss ratio lines, are then discussed.
Finally, we examine the three traditional elements of appraisal value: adjusted book value, value of existing business and value of new business. In determining the of value of new business, we consider two distinct components: the value of new business from established lines of business produced by currently installed distribution capacity, and the potential value of new business sold in new lines of business and/or alternative distribution channels. Together, this definition of new business captures the franchise or “brand” value of the company.
