When Tokio Marine Holdings Inc. announced it would acquire Philadelphia Consolidated Holding Corp. for $4.8 billion in July 2008—near the height of the global economic meltdown—market-watchers were impressed but not overly surprised at the hefty price tag. Some four years on, many agree, the deal still looks smart.
Robert Farnam, senior vice president of equity research with Keefe, Bruyette & Woods, says that Philadelphia had been shopping itself around for a while prior to the sale.
“It was fairly expensive on a price-to-book basis, but the company was doing a lot of things right, and I had an ‘out-perform’ on it at the time,” Farnam recalls. “Tokio paid a lot for it up front, but they had a long-term view.”
Part of that view was informed by Tokio’s desire to grow its P&C markets, which is increasingly difficult to do inside Japan, observes Reina Tanaka, associate director of financial-institutions ratings at Standard & Poor’s Japan.
For Philadelphia, Tokio provides an opportunity to win new clients. “It has been an outstanding fit, and it would have probably taken us 15 years to get where we are without them,” says President & COO Sean Sweeney.
For instance, Philadelphia recently partnered with its London-based sister company, Kiln Group, for underwriting expertise on a Cyber Liability product.
Tokio’s financial strength is another benefit. Philadelphia Consolidated’s investment portfolio tops $5.5 billion, according to Craig Keller, executive vice president, treasurer, secretary and CFO. Prior to the acquisition, a little more than 11 percent had been invested in common stocks but, in keeping with Tokio’s strategy, Philadelphia divested these interests and municipal bonds now comprise 65 percent of its portfolio.
“Bonds are less volatile and have performed well in the last few years,” observes Taoufik Gharib, a director of Standard & Poor’s. “Philadelphia has a conservative investment strategy, and Tokio provides them with a stable capital base for growth.”
A.M. Best, which upgraded Philadelphia from A+ to A++ last September, cited the Pennsylvania-based carrier’s strong capitalization and cash flow—and also cited the financial strength of Tokio Marine.
The makeup of Philadelphia’s senior management team has changed little since the merger. The only major change came with the retirement of company founder James “Jamie” Maguire Sr. His son, Jamie Jr., succeeded him as chairman & CEO. President & COO Sweeney is his nephew.
“Many companies have an anti-nepotism policy,” says Sweeney. “We have a pro-nepotism policy, but only for high achievers: If you’re family and you’re not performing, we’ll fire you.”
Luckily, he adds, that hasn’t happened at the executive level where, excluding retirements, there’s been zero turnover in the past 15 years.
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