Slide 1: Acquisition of The Commerce Group Inc.
Acquisition of The Commerce Group Inc. 31st October 2007 Nº 2007 - 34
Slide 2: Disclaimer
Disclaimer This document is purely informative. Its content does not constitute, nor can it be interpreted as, an offer or an invitation to sell, exchange or buy, and it is not binding on the issuer in any way. The information about the plans of the Company, its evolution, its results and its divide
Slide 3: Executive Summary
Executive Summary MAPFRE has announced the signing of an agreement to acquire all shares of The Commerce Group Inc. (“Commerce”) at a price of $36.70 per share. The Board of Commerce deems the offer to be fair and will recommend the transaction to its shareholders. The transaction will be carried ou
Slide 4: Overview of Commerce
Overview of Commerce Strategic rationale for MAPFRE Transaction details and financial impact Appendix 4 Nº 2007 - 34
Slide 5: Overview of The Commerce Group, Inc.
Overview of The Commerce Group, Inc. The Commerce Group, Inc. (“Commerce”) began operating in 1971. Today it focuses on writing personal automobile insurance and other property and casualty lines in 17 states, which it distributes primarily through independent agents Since 1990, it is the largest an
Slide 6: Geographic focus
Geographic focus Commerce has historically written business in Massachusetts, but has recently expanded in 16 other states Citation Insurance Commerce West Webster, MA Commerce Insurance Co. Pleasanton, CA American Commerce Webster, MA Columbus, OH WA ME MT ND VT OR NH MI NY MA MN ID WI CT RIRI SD W
Slide 7: Key Strengths: competitive position
Key Strengths: competitive position Leading market position in the Massachusetts P&C business: – Strong brand recognition – Excellent agency relationships – Leading market shares: • # 1 in personal auto (31.5%) • # 1 in homeowners (9.8%) • # 2 in commercial auto (12.7%) – Above average position in a
Slide 8: Key strengths: distribution through independent agents
Key strengths: distribution through independent agents Independent agents are Commerce’s main distribution channel Relations with agents are excellent, as evidenced by their high degree of loyalty: nearly 60% of all agents in Massachusetts have been with the group for over 10 years Commerce ensures
Slide 9: Key strengths: distribution through the AAA
Key strengths: distribution through the AAA Commerce enjoys a strategic relationship with numerous American Automobile Association (AAA) clubs In Massachusetts: – Commerce has exclusive distribution agreements with all three AAA clubs, whose members receive a 5% discount on their premiums – In 2006,
Slide 10: Distribution network
Distribution network Independent Agents AAA Agents Brokers Total California 120 --- 1,080 1,200 Massachusetts 792 3 --- 795 Arizona 294 --- --- 294 Oregon 200 1 --- 201 New York --- --- 72 72 New Hampshire 55 --- --- 55 Ohio 37 12 --- 49 Indiana 35 1 --- 36 Kentucky 25 2 --- 27 Idaho --- 2 --- 2 Ten
Slide 11: Commerce competitive position
Commerce competitive position Personal auto Homeowners Commercial auto Massachusetts Massachusetts Massachusetts Rank % of Market Rank % of Market Rank % of Market Commerce Group 1 31.5% 1 9.8% 2 12.7% Safety Group 2 11.2 11 3.2 3 11.0 Arbella Insurance Group 3 9.6 7 5.2 4 10.5 Liberty Mutual Insura
Slide 12: Growth in market share in MA personal auto
Growth in market share in MA personal auto Commerce has significantly and consistently grown its MA personal auto business 889 929 (policies in thousands; premiums in $ million) 834 870 791 $1,201 $1,253 654 693 $1,172 600 609 615 $1,118 $1,046 553 $918 $868 $794 $809 $816 $733 1996 1997 1998 1999 2
Slide 13: Key Strengths: underwriting results and claims handling
Key Strengths: underwriting results and claims handling Commerce has been delivering consistently for over 15 years positive technical results and significant reserve redundancies, thanks to: – Effective underwriting: • The largest proprietary underwriting database in the Massachusetts market with a
Slide 14: MA internal personal auto acquisition costs
MA internal personal auto acquisition costs (1) Commerce enjoys a low cost structure enabling it to compete effectively Agency companies Percent of earned premium Commerce 3.3% Travelers 4.1 Safety 6.0 Hanover 8.1 Plymouth Rock 8.5 Arbella 11.8 White Mountain 13.5 Direct Writers Percent of earned pr
Slide 15: Strong, consistent historical underwriting results
Strong, consistent historical underwriting results Loss and Loss Adjustment Expense Ratio 90 88.4% 78.7% 78.9% 81.4% 81.5% 80 76.4% 75.0% 73.6% 75.3% 72.7% 70 74.6% 75.5% 73.4% 71.7% 71.1% 71.7% 72.1% 71.8% 65.5% 60 62.9% 60.8% 59.9% 50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Expense
Slide 16: Key Strengths: investment portfolio and returns
Key Strengths: investment portfolio and returns Commerce generates recurring investment yields from a portfolio made up primarily of high quality fixed income investments: Private sector: 52% Public sector: 48% Equities 4% Corporate bonds 14% State/muni bonds 28% Private ABS 4% US Govt./agencies bon
Slide 17: Key Strengths: profitability and cash generation
Key Strengths: profitability and cash generation Commerce has consistently recorded growing profits and above-industry-average returns on the back of its recurring positive underwriting results and strong net financial income ($ in millions) $229.1 $230.7 $198.6 $111.3 $1,825 $100.4 $1,736 $93.7 $99
Slide 18: Key strengths: experienced management team
Key strengths: experienced management team Name Age Position Biography y A Certified Public Accountant, was appointed CEO to replace Arthur Remillard, Jr. in July 2006 CEO, President, Chairman of Gerald Fels 63 the Board y Previously President and COO of Commerce Insurance since 2001 y Appointed Exe
Slide 19: Strategic rationale for MAPFRE
Overview of Commerce Strategic rationale for MAPFRE Transaction details and financial impact Appendix 19 Nº 2007 - 34
Slide 20: Consistency with MAPFRE's current strategy
Consistency with MAPFRE´s current strategy Criteria “Fit” of Commerce with MAPFRE Markets or US was indicated in the past as a target market for MAPFRE segments that are Joint growth opportunities exist through: not fully penetrated – The introduction of a specific offering for the Hispanic communit
Slide 21: MAPFRE current operations in the US
MAPFRE current operations in the US MAPFRE Insurance Company Of Florida – Company domiciled and licensed in Florida, currently writing commercial lines business and more recently personal Auto. Rated ‘A-’ by A.M. Best MAPFRE Insurance Company – Company domiciled and licensed in New Jersey, as well a
Slide 22: U.S. personal auto markets
U.S. personal auto markets MA has attractive demographics for personal auto insurance Average Number of Cars Vehicles Per % of Population Per Capita State Premium for personal Combined Ratio Insured Housing Unit Hispanic personal Income auto insurance New Jersey $1,184 96.3% 5,132,615 1.8 14.1% $43,
Slide 23: Impact on MAPFRE's business mix
Impact on MAPFRE’s business mix On the basis of MAPFRE Standalone(1) MAPFRE Pro Forma Premiums MAPFRE MAPFRE ASISTENCIA ASISTENCIA MAPFRE INTL. 2% 2% MAPFRE INTL. 9% 10% EE.UU. 9% MAPFRE RE Impact on 11% Geographic MAPFRE RE Spain 10% 53% Mix Spain UNIDAD 58% AMERICA 19% UNIDAD AMERICA 17% Life Life
Slide 24: Impact on MAPFRE's business profile
Impact on MAPFRE’s business profile MAPFRE’s business profile will be strengthened by the integration of Commerce: – Addition of an established and solid platform to develop a business in the U.S. – Enhanced geographical, business cycle and currency diversification – Considerable strengthening of ma
Slide 25: Transaction details and financial impact
Overview of Commerce Strategic rationale for MAPFRE Transaction details and financial impact Appendix 25 Nº 2007 - 34
Slide 26: Transaction highlights
Transaction highlights Transaction Overview Acquisition of 100% of The Commerce Group Inc. Pricing Total consideration of $2,207mn (€1,538mn), $36.70 per share Acquisition price implies P/E 2008 of 13.1x (First Call consensus) and P/BV (Q3 ‘07) of 1.65x Premium to market of 17.9% vs. 30th October’s
Slide 27: Financial impact: value creation for MAPFRE shareholders
Financial impact: value creation for MAPFRE shareholders The acquisition of Commerce will be immediately additive to MAPFRE’s EPS Projected returns exceed MAPFRE’s cost of capital Funding mix aimed to protect present solvency position by combining equity issuance with a rational use of the Group’s h
Slide 28: Transaction structure
Transaction structure 1. MAPFRE creates a Special Purpose Vehicle (SPV) and capitalises it with the financial resources needed to acquire Commerce 2. The merger between the SPV and Commerce is approved by the holders of at least two thirds of Commerce common stock 3. SPV and Commerce merge 4. The re
Slide 29: Appendix
Overview of Commerce Strategic rationale for MAPFRE Transaction details and financial impact Appendix 29 Nº 2007 - 34
Slide 30: Organisational structure
Organisational structure The Commerce Group, Inc. (Webster, MA) BBB/Baa2 AAA Southern New England 100% 100% 100% 95% 5% Bay Finance Co. Commerce Citation Insurance ACIC Holding Co. (Webster, MA) Insurance Co. (Webster, MA) Headquarters (RI) stopped doing business in (Webster, MA) Aug. 2007 A.M.Best
Slide 31: Commerce's historical financials
Commerce’s historical financials Income Statement ($ in millions) For the Year Ending December 31 2004 2005 2006 YTD 3Q'06 YTD 3Q'07 Revenues: Direct Premiums Written $1,838.2 $1,874.2 $1,864.2 $1,445.0 $1,447.7 Premiums Assumed 128.2 132.1 99.0 78.4 78.6 Net premiums written 1,712.5 1,736.2 1,825.3
Slide 32: Investor Relations Department
Investor Relations Department Luigi Lubelli Finance Director +34-91-581-6071 Jesús Amadori Carrillo +34-91-581-2086 Alberto Fernández-Sanguino +34-91-581-2255 Beatriz Izard Pereda +34-91-581-2061 Antonio Triguero Sánchez +34-91-581-5211 Marisa Godino Alvarez Secretaria +34-91-581-2985 MAPFRE S.A. In
Slide 33: Disclaimer
Disclaimer In connection with the operation hereby disclosed, COMMERCE will file with the Stock Exchange Commission (“SEC”), among other materials, a proxy statement. We urge investors to read the proxy statement and these other materials when they become available because they will contain importan