Aventus Capital Inc. · TSXV:AVTS
Aventus Capital — The Westaim — Merger or Acquisition (March 2014)
44 slides from Aventus Capital's merger presentation, March 2014
Slide 1: Houston International Insurance Group Acquisition Summary
Houston International Insurance Group Acquisition Summary March 2014
Slide 2: Disclaimers: Safe Harbour Statement
Disclaimers Safe Harbour Statement The information contained herein is based on publicly available information, internally developed data and other sources. Where any opinion is expressed in this presentation, it is based on the assumptions and limitations mentioned herein and is an expression of pr
Slide 3: Disclaimers: Non-GAAP Measures
Disclaimers Non-GAAP Measures Non-GAAP Measures – Westaim Westaim uses both international financial reporting standards (“IFRS”) and non-GAAP measures to assess performance. The Company cautions readers about non- GAAP measures that do not have a standardized meaning under IFRS and are unlikely to b
Slide 4: Table of Contents
Table of Contents Section Description Page Investment in Houston International Insurance Group 1. Executive Summary 6 2. The Westaim Corporation 9 3. p Houston International Insurance Group 12 Specialty Insurance Market 13 HCC Track Record 16 HIIG Overview 21 4. HIIG Acquisition Overview 31 Appendic
Slide 5: Executive Summary
| Executive Summary Section 1
Slide 6: Executive Summary: Key Highlights
Executive Summaryy Key Highlights The Westaim Corporation (“Westaim” or the “Corporation”), through a limited partnership established and controlled by Westaim (“Westaim HIIG p or the “Partnership”), Limited Partnership” p ), has agreed g to p purchase a significant g interest in Houston Internati
Slide 7: Executive Summary: Key Highlights
Executive Summaryy Key Highlights Conforms with Westaim’s corporate strategy – IInvestment in i HIIG is i in i line li with i h Westaim’s W i ’ go-forward f d strategy off partnering i with i h aligned li d and d capable bl management teams to build b ild sustainable i bl businesses that can gener
Slide 8: The Westaim Corporation
The Westaim Corporation Section 2
Slide 9: The Westaim Corporation Overview
The Westaim Corporation p Overview Market and Financial Statistics * The Westaim Corporation is an investment company listed on the Ticker TSXV:WED Assets TSX Venture Exchange (TSXV: WED) q Cash and cash equivalents $ 35.4 Share price (3/19/2014) $ 2.88 Accounts receivable 0.2 Upon completing th
Slide 10: Experienced Senior Leadership Team
The Westaim Corporation p Experienced Senior Leadership Team Ian W. Delaney – Chairman Mr. Delaneyy has been Chairman of Westaim since 1996. He is the former Chairman of Sherritt International Corporation, p , and served as director ((1995- 2013) and Non-Executive Chairman (2009-2013). Mr. Delaney w
Slide 11: Houston International Insurance Group
Houston International Insurance Group Section 3
Slide 12: Houston International Insurance Group Overview
Houston International Insurance Group p Overview Westaim, through the Westaim HIIG Limited Partnership, has agreed to purchase a significant interest in Houston International Insurance Group, Ltd., p yg a rapidly growing g specialty p y insurance company p y – HIIG’s founder and CEO is Stephen L.
Slide 13: Specialty Insurance Comparables
Specialty p y Insurance Specialty Insurance Comparables – Specialty Insurers (1) Specialty insurance involves evaluating risks which are Company Mcap Debt / Cap Price / Earnings Price / Book challenging to define and price 2014E 2015E 2014E 2015E – Contracts are custom-tailored and individually un
Slide 14: Specialty Insurance: Share Price Performance
Specialty p y Insurance RLI Corp. W.R. Berkley Corporation AmTrust Financial Services, Inc. $240 $80 $50 $200 $ $40 $60 $160 $30 $120 $40 $20 $80 $20 $10 $ $40 $0 $0 $0 1989 1992 1995 1998 2001 2004 2007 2010 2013 1989 1992 1995 1998 2001 2004 2007 2010 2013 2006 2007 2008 2009 2010 2011 2012 2013 P
Slide 15: Comparative Performance - Price to TNAV
Specialty p y Insurance Comparative Performance – 5 Yr. Price to TNAV1 2 50x 2.50x Average LTM 3YR 5YR Specialty 2 1.79x 1.53x 1.41x Personal 3 1.15x 1.02x 1.03x Multi / Commercial 4 1.21x 1.10x 1.09x Offshore Reinsurers 5 1.04x 0.92x 0.91x 2 00 2.00x 1.93x NAV P / TN 1 50 1.50x 1.34x 1.28x 1.14x 1.
Slide 16: HCC Track Record: Overview
HCC Track Record HCC Overview HCC Insurance Holdings Inc. (“HCC”), was established in 1974 by Stephen L. Way – Stephen was HCC HCC’ss CEO until 2006 and Chairman of the Board until 2007(1) HCC underwrites specialty insurance worldwide and operates in five segments: Accident & Health, Aviation, D
Slide 17: HCC Historical Share Price and Acquisitions
HCC Track Record HCC Historical Share Price (1992-2006) 1 Oct-94 International Marine and General Insurance Company $50.00 7,500 2 Jan-96 LDG Management 3 Sep-96 S 96 North American Special Risks 4 Nov-96 TRM International 5 Jan-97 Aviation and Marine Insurance Group (AMIG) 6 Jan-97 Avemco 7 Jan-97
Slide 18: HCC Underwriting Track Record
HCC Track Record HCC Underwriting Track Record Average Loss Ratio: 64.7% Footnotes: Note: GAAP. All data as reported by company and as stated by the company in annual reports. * The Combined ratio for fiscal year 1999 excludes theeffects the effects of the provision for reinsurance reinsurance. Incl
Slide 19: HCC Return on Equity
HCC Track Record HCC Return on Equity * 29.4% Note: Net earnings as reported on annual reports. Not adjusted for discontinued operations or sale of non‐operating assets. Note: Net earnings & shareholders' equity figures for a given year are taken from the most recent annual report where the informat
Slide 20: Exit from HCC
HCC Track Record Exit from HCC Between 2005 to 2008, the SEC investigated more than 100 companies for past stock option grants and practices and had over 160 cases open at the p peak of its review In August 2006, following an SEC enquiry and at Stephen L. Way’s request, HCC’s Board of Directors
Slide 21: HIIG Overview
HIIG Overview Overview Lines of Business – 2013 GWP(1) HIIG was formed in 2010 through a merger between a specialty 0.6% insurance startup (formed in 2007 by Stephen Way) and a specialty insurance company owned by a consortium of private 7.9% equity investors Specialty – Several members of HIIG’s
Slide 22: HIIG Historical Timeline
HIIG Overview Historical Timeline December 2010: Merged g SWIP and Lightyear g y Delos October 2012: Sold NHIC to an unaffiliated November N b 2007: 2007 Formed F d Southwest S th t Insurance I Acquisition Corp. (“LYDAC”) to form Houston insurance group Partners, Inc. (“SWIP”) International Insuranc
Slide 23: Merger of Specialty Insurance Companies
HIIG Overview Merger of Specialty Insurance Companies In December 2010, Southwest Insurance Partners, Inc. (“SWIP”) merged its business with Lightyear Delos Acquisition Corporation (“LYDAC”), a portfolio company p p y owned by y a consortium of p private equity q y investors,, to form HIIG LYDAC
Slide 24: Claim Counts, Adverse Development and Net Reserves
HIIG Overview Claim Counts – Non-Continuing (in 000s) * Prior Period Adverse Development (in 000s) 18,000 $ 35,000 16,264 16,000 $ 29,339 $ 30 30,000 000 14,000 $ 25,000 12,000 9,782 10,000 $ 20,000 $ 17,256 $ 14,971 8,000 $ 15,000 6 000 6,000 3,646 $ 10,000 4,000 2,527 $ 4,325 $ 3,759 $ 5,000 2,000
Slide 25: Non-Continuing Net Reserves and Management Actions
HIIG Overview Non-Continuing Net Reserves as at Dec 31, 2013 * Management Actions 2.9% To address adverse development trends, in early 2013 Stephen Wayy implemented p a restructuring g of the claims operation: p 9.7% – Replaced certain claims directors Workers Comp – Instituted an extensive file r
Slide 26: HIIG Underwriting Lines of Business
HIIG Overview Underwriting Lines of Business Description Type of Insurance 2013 GWP * Construction Cranes; Specialty Contractors and General Liability, Auto Liability, $51.3 million Heavy Transport Excess Liability, Property/Inland Marine, Workers Compensation Energy Mining and General Liability, Au
Slide 27: Growth Plan
HIIG Overview Growth Plan HIIG’s growth is expected to come both organically and through selected acquisitions, much like the early years of HCC Internal growth opportunities – Capitalizing on opportunities to write profitable business based on renewed capital base – Hiring high quality underwri
Slide 28: Income Statement - Continuing Operations
HIIG Overview Income Statement – Continuing Operations(1) Historical Unaudited Dec 31, Fiscal Year End 2011 (1) 2012 (1) 2013 (1) Gross Written Premiums $ 98,799 $ 181,831 $ 383,584 Net Written Premiums 54,496 125,328 275,072 Net Earned Premiums 38,356 84,841 207,833 Losses Incurred & LAE 26,340 26
Slide 29: Preliminary Adjusted Balance Sheet as at December 31, 2013
HIIG Overview Preliminary Adjusted Balance Sheet as at December 31, 2013(1) Unaudited and Preliminary y Adjusted j Balance Sheet S Assets Liabilities Fixed Income Securities, at fair value $ 401,716 Loss and Loss Adjustment Expense Reserves $ 376,489 Equity Securities 13,309 Unearned Premium 197,265
Slide 30: HIIG Acquisition Overview
HIIG Acquisition Overview Section 4
Slide 31: HIIG Acquisition Overview
HIIG Acquisition q Overview Overview Westaim, through Westaim HIIG Limited Partnership, has agreed to purchase a significant interest in Houston International Insurance Group, Ltd. ((“HIIG”)) ((collectively, y, the “Transaction”)) through: g – The acquisition of common shares of HIIG owned by cert
Slide 32: Stage I - Structure
HIIG Acquisition q Overview Stage I – Structure(1) Li it d Partners Limited P t (LPs) (LP ) $57 million The Westaim Corporation $20 million (~11.3%) Global Insurance Investor #1 $20 million ((~11 11.3%) 3%) $1 million fee Global Insurance 100.0% Investor #2 $20 million (~11 ( 11.3%) 3%) Westaim HIIG
Slide 33: Stage II - Structure
HIIG Acquisition q Overview Stage II – Structure(1)(4) Stage g II Li it d Partners Limited P t (LPs) (LP ) Required Financing $57 million The Westaim Corporation $41.2 million (~22.8%) $20 million (~11.8%) (Net ~$38.7 million) Global Insurance Investor #1 $20 million ((~11 11.8%) 8%) $1 million fee
Slide 34: Conclusion
HIIG Acquisition q Overview Conclusion Opportunity to partner with management and co-invest with two world-class insurance companies to acquire a controlling interest in a growing p y insurer at a discount to its book value specialty – Private equity investors investment in HIIG is reaching maturi
Slide 35: HIIG Financials - GAAP Reconciliation
HIIG Financials – GAAP Reconciliation Appendix A
Slide 36: Disclaimer: Non-GAAP Measures and Other Information
Disclaimer Non-GAAP Measures and Other Information HIIG uses both GAAP and non-GAAP measures to assess performance. While the non-GAAP measures disclosed herein have been derived from HIIG's financial statements for the years ended December 31, 2011 (audited), 2012 (audited) and 2013 (unaudited), th
Slide 37: Fiscal 2011 Income Statement
HIIG Financials – GAAP Reconciliation Fiscal 2011 Income Statement Adjustments Audited Non-Continuing Reclassification Non-Recurring Total Non-GAAP Dec 31, 2011 Dec 31, 2011 (1) (2) (3) Gross Premiums Written 218,211 (119,412) - - (119,412) 98,799 Less: Ceded Written 87,387 (43,084) - - (43,084) 44,
Slide 38: Fiscal 2012 Income Statement
HIIG Financials – GAAP Reconciliation Fiscal 2012 Income Statement Adjustments Audited Non-Continuing Reclassification Non-Recurring Total Non-GAAP Dec 31, 2012 Dec 31, 2012 (1) (2) (3) Gross Premiums Written 241,614 (59,783) - - (59,783) 181,831 Less: Ceded Written 104,131 (47,628) - - (47,628) 56,
Slide 39: Fiscal 2013 Income Statement
HIIG Financials – GAAP Reconciliation Fiscal 2013 Income Statement Preliminary Adjustments Preliminary Non- Unaudited Non-Continuing Reclassification Non-Recurring Total GAAP Dec 31, 2013 Dec 31, 2013 (1) (2) (3) Gross Premiums Written 400,701 (17,117) - - (17,117) 383,584 Less: Ceded Written 115,52
Slide 40: Westaim Overview
| Westaim Overview Appendix B
Slide 41: Westaim History
Westaim Overview History Westaim was incorporated in 1996 and spun out of Sherritt International Corporation with investment holdings in technology and related businesses From 1996 through 2009, 2009 Westaim made several acquisitions and divestitures with varying degrees of success In April 20
Slide 42: Jevco Case Study and Value Creation
Westaim Overview Jevco Case Study and Value Creation Through existing relationships of the Board and management, Westaim sourced the opportunity, negotiated the transaction IDENTIFY and d secured d the th required i d financing fi i Executed an efficient and detailed due diligence process intern
Slide 43: Investment Strategy
Westaim Overview Investment Strategy • Invest in • Partner with companies at a aligned and discount to its capable intrinsic value management teams Value Partnership Investing Approach Long-term Business Horizon Building • Execute • Provide business plan oversight and with focus on capital allocatio
Slide 44: The Westaim Corporation contact details
The Westaim Corporation 212 King Street West, Suite 201 Toronto, Ontario C d M5H 1K5 Canada www.westaim.com info@westaim.com 44