Philadelphia Consolidated Holding Corp - Additional Proxy Soliciting Materials - Non-Management (definitive) (DFAN14A)
24 July 2008 - 4:09AM
Edgar (US Regulatory)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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Philadelphia Consolidated Holding Corp.
(Name of Registrant as Specified In Its Charter)
Tokio Marine Holdings, Inc.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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On July 23, 2008, Tokio Marine Holdings, Inc. made an investor presentation in Japan. The
text of the material is as follows:
Acquisition of
Philadelphia Consolidated Holding Corp.
July 23, 2008
Tokio Marine Holdings, Inc.
President: Shuzo Sumi
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Disclaimer
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this presentation may constitute "forward-looking statements." Actual results could differ materially from those
projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include those
referred to in Philadelphia Consolidated Holding Corp's filings with the U.S. Securities and Exchange Commission (the "SEC"), as
well as the following: operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining
relationships with employees, customers or suppliers) may be greater than expected following the announcement of the transaction;
the retention of certain key employees at Philadelphia Consolidated Holding Corp.; the conditions to the completion of the transaction
may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the
anticipated schedule; the parties may not be able to meet expectations regarding the timing, completion and accounting and tax
treatments of the merger. Tokio Marine Holdings, Inc. assumes no obligation to update the information in this presentation, except
as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak
only as of the date hereof.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed acquisition of Philadelphia Consolidated
Holding Corp. by Tokio Marine Holdings, Inc. In connection with the proposed acquisition, Philadelphia Consolidated Holding Corp.
intends to file relevant materials with the SEC, including Philadelphia Consolidated Holding Corp's proxy statement on Schedule 14A.
STOCKHOLDERS OF PHILADELPHIA CONSOLIDATED HOLDING CORP. ARE URGED TO READ ALL RELEVANT
DOCUMENTS FILED WITH THE SEC, INCLUDING PHILADELPHIA CONSOLIDATED HOLDING CORP'S PROXY STATEMENT,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and
security holders will be able to obtain the documents free of charge at the SEC's web site, http://www.sec.gov, and Philadelphia
Consolidated Holding Corp. stockholders will receive information at an appropriate time on how to obtain transaction-related
documents for free from Philadelphia Consolidated Holding Corp. Such documents are not currently available.
Participants in Solicitation
Tokio Marine Holdings, Inc. and Philadelphia Consolidated Holding Corp. and its directors and executive officers may be deemed to
be participants in the solicitation of proxies from the holders of Philadelphia Consolidated Holding Corp. common stock in respect of
the proposed transaction. Information about the directors and executive officers of Philadelphia Consolidated Holding Corp. is set
forth in the proxy statement for Philadelphia Consolidated Holding Corp's 2008 Annual Meeting of Stockholders, which was filed with
the SEC on April 15, 2008. Investors may obtain additional information regarding the interest of such participants by reading the
proxy statement regarding the acquisition when it becomes available.
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Contents
1. Transaction summary
2. Strategic rationale
3. Overview of Philadelphia Consolidated
4. Commitment of management
5. Joint initiatives toward future growth
6. Valuation, financial impact and dividend and share buyback policy
Appendix 1: 1H 2008 Financial Results of Philadelphia Consolidated
Appendix 2: Additional Information of Philadelphia Consolidated
In this presentation, Philadelphia Consolidated means Philadelphia
Consolidated Holding Corp. except for where special note(s) is (are) added.
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1. Transaction Summary
Transaction Rationale at a Glance
Transaction allows the Tokio Marine Group to establish a significant
presence in the U.S, the world's largest insurance market.
Transaction leads Tokio Marine to significant expansion of revenues and
profits of the international insurance business.
Transaction creates expansion of profits of Tokio Marine Group and a
global portfolio well-balanced between domestic, developed and emerging
markets.
Acquisition of Philadelphia Consolidated is a decisive step in Tokio Marine's
expansion of international business to shape a world class insurer.
Philadelphia Consolidated is a premier company highly sought by many
including Tokio Marine but previously unattainable.
Philadelphia Consolidated, in combination with Kiln (acquired March 2008),
provides a strong presence in both of the U.S. P&C and London insurance
markets.
Philadelphia Consolidated builds a solid base of international business for
sustainable organic growth of the entire Tokio Marine Group.
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1. Transaction Summary
Philadelphia Consolidated
Excellent strategic fit
One of the best performers in the U.S. P&C market through all
cycles
Consistently achieved superior growth and profitability since its
foundation in 1962
Focus on targeted markets in specialty and commercial line
Most business not exposed to the economic cycle
Innovative products and strong proactive marketing
Very experienced leadership team
Nationwide network in the U.S.
Well-established culture of growth and profitability - Driven to win
Philadelphia Consolidated is a best fitted company for Tokio
Marine's international growth
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1. Transaction Summary
Transaction Terms
Transaction
Consideration
per Share
Consideration
Details
Aggregate
Consideration
$61.50 per fully diluted share
Expected
Closing Date
Approvals
All cash acquisition of 100% of Philadelphia Consolidated's
outstanding shares
Employment agreements with key management
Voting agreements from key founding family shareholders
$4.7 billion - Tokio Marine Group cash on hand, together with
borrowings, including non-convertible bond issuance, to be repaid largely
by the sale of equity holdings of Tokio Marine & Nichido Fire.
Fourth quarter 2008
Customary regulatory approvals and Philadelphia
Consolidated's shareholder vote
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FY 2008 (Forecast)
Tokio Marine plans to triple its FY 2005 group adjusted earnings of JPY
138.7B by FY 2015. Expansion of international insurance business is a
driving force for our growth strategy.
Domestic Non-Life
Domestic Life
International
Insurance Business
Asset Management and
Other Non-insurance Business
FY 2005 results
2006-2008 mid-term corporate strategy aims to expand the following
4 business domains and to achieve a better balanced profit expansion.
2. Strategic Rationale
Mid-to-long Term Corporate Strategy of the Tokio Marine Group
Domestic Non-Life
65%
Domestic Life
25%
International
Insurance
Business 6%
Asset Management and
Other Non-insurance
Business 4%
Domestic Non-Life
52%
Domestic Life
26%
International Insurance
Business
21%
Asset Management and
Other Non-insurance Business
1%
by FY 2015
Domestic Non-Life
40-45%
Domestic Life
20-25%
International Insurance
Business 20-25%
Asset Management and
Other Non-insurance Business approx. 10%
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2. Strategic Rationale
Establish a significant presence in the U.S
Geographical Distribution of
Global P&C Premium (2007)
Historical U.S. P&C market size and growth rate
(Direct Premiums Written)
Asia 7%
Other 3%
Japan 6%
EU 35%
U.S. 39%
Canada/Central and
South America 6%
Other
Europe^^^
4%
(Unit: $ in billions)
The U.S. P&C market is the largest in the world with the size of approx. $493 B.
Expected to grow in the mid-to-long term with the growth of its population and
economy
(Source: Swiss Re, sigma)
(Source: A.M. Best, Best's Aggregates & Averages)
'97-'06 CAGR 6.0%
CAGR: Compound Average Growth Rate
Acquisition of Philadelphia Consolidated enables Tokio Marine to
significantly enhance its platform for commercial-line business in the U.S.
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2. Strategic Rationale
International expansion of revenue and profits
Pro-forma Basis
Approx. JPY 740B
JPY 547.3B
Approx.
JPY 195B up
35%up
Net Premiums Written of International Business
Adjusted Earnings of International Business
Pro-forma Basis
Approx. JPY 62B
JPY 31.7B
Acquisition of Philadelphia Consolidated leads to significant expansion
of revenue and profits of the international business
Before Acquisition
(*1) The contribution of Philadelphia Consolidated is based on simulation using 2008 forecasts, while its profit/loss will be consolidated with
Tokio Marine's financial statement from FY 2009. Figures of Philadelphia Consolidated are based on its own forecast.
(*2) Adjusted Earning: an indicator that makes pure profits/losses for the period clear by eliminating the effects of investment exclusive to
the Japanese P&C insurance business as well as deducting factors such as realized gains/losses and unrealized losses of assets.
Amortization of goodwill is not included. (Please refer to our website for further detail.)
(*3) Tokio Marine figures are converted into JPY by exchange rates at the end of 2007(e.g. $1=JPY 114.15).
After Acquisition
Approx.
JPY 30B up
95%up
Before Acquisition
After Acquisition
Simulation using 2008 Figures (pro forma basis)
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2. Strategic Rationale
Expansion of profits of Tokio Marine Group and create a well-
balanced global portfolio
After Acquisition^^^^
Before Acquisition
Philadelphia Consolidated enables Tokio Marine to significantly increase
its international business which has higher growth potential
Adjusted Earnings and ROE of Tokio Marine Group
Simulation using 2008 Figures (pro forma basis)
Domestic Non Life
Insurance 52%
International
Insurance Business
21%
Asset Management and
Other Non-insurance
Business 1%
Adjusted Earnings
Tokio Marine Group Total
JPY 146.5B
International
Insurance Business
35%
Adjusted Earnings
Tokio Marine Group Total
Approx.JPY 176.5B
Pro-forma Basis
ROE (adjusted earnings basis): 4.9% (pro forma basis)
ROE (adjusted earnings basis): 4.1%
(*1) Kiln's profit/loss is consolidated with Tokio Marine's financial statement from FY 2008.
(*2) Tokio Marine figures are converted into JPY by exchange rates at the end of 2007(e.g. $1=JPY 114.15).
Domestic Life
Insurance 26%
Domestic Life
Insurance 21%
Domestic Non Life
Insurance 43%
Asset Management and
Other Non-insurance
Business 1%
20% up
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North & Central
America 35%
(Philadelphia
Consolidated 27%)
Asia/Oceania
24%
Reinsurance
13%
Europe/
Middle East
19%
(Kiln: 15%)
North & Central
America 12%
South America
32%
Asia/Oceania
18%
Reinsurance 9%
Europe/Middle East
14% (Kiln 11%)
South America
24%
.
Before Acquisition of Philadelphia Consolidated:
JPY 547.3B
After Acquisition of Philadelphia Consolidated:
Approx. JPY 740B^^^^^
Acquisition of Philadelphia Consolidated brings greater geographic
balance to its international portfolio
Net Premium Written of International Insurance Business
Simulation using 2008 Figures (pro forma basis) ^^^
(*1) Kiln's profit/loss is consolidated with Tokio Marine's financial statement from FY 2008.
(*2)Tokio Marine figures are converted into JPY by exchange rates at the end of 2007(e.g. $1=JPY 114.15).
2. Strategic Rationale
Expansion of profits of Tokio Marine Group and create a well-
balanced global portfolio
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3. Overview of Philadelphia Consolidated
Philadelphia Consolidated - Competitive Advantages
Founded in 1962, based in Bala Cynwyd, in the suburbs of Philadelphia, PA
47 Offices in the US, 1400 Employees
Chairman James J. Maguire and CEO James J. Maguire, Jr.
<Competitive Advantages>
Capital strength
A+ ("Superior") rating from A.M. Best and A1 rating from Moody's
Differentiated business model
Focus on targeted commercial markets
Value added products
Superior product development capabilities cater to targeted markets
Focus on short tail business (minimal long tail business)
Diverse distribution practices
Superior marketing expertise leverages a wide variety of channels such as direct sales,
brokers, core agents (Preferred Agents), prospective core agents (Firemark Agents), and
the Internet.
Disciplined operations
Prudent, process-focused underwriting with strong IT platform
Proven track records of experienced management since its foundation
Stable management with significant presence of the founder's family
Average tenure of senior management employees with Franklin is 17 years
Philadelphia Consolidated, a clearly focused insurer with specialized expertise,
provides Tokio Marine with a rare opportunity to operate competitively in the US
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3. Overview of Philadelphia Consolidated
Philadelphia Consolidated's network across the U.S.
Philadelphia Consolidated's significant US presence will afford Tokio
Marine a strong base of operations
47 offices in 13 regions covering the U.S.
Direct sales organization initiates
proactive risk selection
13,000 broker relationships
217 Preferred Agents
505 Firemark Agents (prospective
preferred agents)
Local Underwriting/Claims
Networked via web-based
software
Home Office
Northeast
Region
Florida
Region
Central
Region
Sunbelt
Region
Western
Region
North Central
Region
South West
Region
Liberty American
Personal Lines
Division
Ohio Valley
Region
Rocky Mt.
Region
Mid-Atlantic Region
Hawaii
Northwest Region
Metro Region
Southeast
Region
Gillingham
& Associates
Home Office
Regional Office
Field Office
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3. Overview of Philadelphia Consolidated
Superior growth and profitability
(Unit: $ in millions)
Historical Net Income ** (1997-2007)
CAGR (1997-2007)
34.5%
(US P&C Insurance
industry Average: 7.4%)
Philadelphia Consolidated has the proven ability to deliver consistent
premium growth and profits throughout the cycle
Historical Net Premiums Written (1997-2007)
CAGR (1997-2007)
29.3%
(US P&C Insurance industry
Average: 4.7%)
Return on Equity (1998-2007 Average) **
(Unit: $ in millions)
Source: Philadelphia Consolidated's annual reports; Property-Casualty Forecast & Analysis Second Quarter 2008 (c) 2008 Conning Research & Consulting, Inc. (tm).
Philadelphia Consolidated
Industry Average
16.6%
7.8%
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3. Overview of Philadelphia Consolidated
Superior underwriting performance
Loss and LAE Performance (1997-2007)*
Combined Ratio Performance (1997-2007)*
Culture of disciplined underwriting, product development and loss
control has allowed Philadelphia Consolidated to consistently beat the
industry averages of both loss ratio and combined ratios
Source: Philadelphia Consolidated's Annual Report and A.M.Best Best's Aggregates & Averages
* Figures are on a statutory basis.
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4. Commitment of management
Employment agreements with key management including
retention package
Substantial personal investment in Tokio Marine Holdings
stock by Philadelphia Consolidated's Chairman and
significant personal investment by executive management
Exchange of board members between Philadelphia
Consolidated and Kiln
Participation in International Strategic Committee
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5. Joint initiatives toward future growth
Expand growth of Philadelphia Consolidated's business in U.S., supported by the
Tokio Marine's superior credit ratings and financial strength.
- Accelerate expansion of high-quality portfolios by utilizing Tokio Marine's capital strength.
- Improved efficiency of Philadelphia Consolidated's ceded reinsurance by utilizing the Tokio Marine's capacity.
Transfer Philadelphia Consolidated's business model to non-US markets - Canada,
Central and South America
Formation of joint projects with Kiln
- Establish International Strategic Committee to formulate international strategies for further growth and profits by
integrating strengths of Kiln and Philadelphia Consolidated.
Cross-sell Kiln's specialist products through Franklin's distribution channels of 47 offices across the U.S. and make
Philadelphia Consolidated's products for specialized commercial sectors available in Europe.
Tokio Marine Holdings
Kiln
Philadelphia Consolidated
International Strategic Committee
Strengths
Superior credit ratings
Financial strength
Underwriting capacity
Global network
Strengths
- Product development capabilities focused on targeted commercial markets
- Disciplined underwriting operations
- Marketing skills utilizing variety of distribution channels
Strengths
Sophisticated underwriting expertise
Prestigious brand in the Lloyd's market
Unique product offering
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6. Valuation , Financial Impact and Dividend and Share
Buyback Policy
Our valuation is based upon fundamental analysis. This represents a
premium to the last twelve months average share price of 66.5%. When
compared to the last full calendar year of trading, 2007 being a calmer
period in financial markets, it represents a premium of 46.8%.
Impact on the financial results of the Tokio Marine Group:
Profits of Philadelphia Consolidated will be consolidated into the Tokio
Marine Group's financial statements from FY 2009.
<Simulation using 2008 figures (pro forma basis)>
Adjusted Earnings: Increase from JPY 146.5B to JPY 176.5B (approx. JPY 30B, or 20% up)
(not included amortization of goodwill)
ROE (Adjusted Earnings Basis): Improve from 4.1% to approx. 4.9% (approx 0.8% up)
No change to our dividend and share buy back plans for FY 2008. We will
announce our next capital strategy plan, including share buybacks, for
2009 onwards later this year.
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Appendix 1: 1H 2008 Financial Results of Philadelphia
Consolidated
- Second Quarter & Year-to Date Highlights
- Commercial Lines Segment
- Specialty Lines Segment
(Professional / Management Liability)
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Philadelphia Consolidated Second Quarter & Year-to-
Date Highlights
(Dollars in millions, except per share data)
QTD 2008 YTD 2008
Gross Written Premiums $445.3 $888.4
Net Earned Premiums $393.0 $772.4
Net Investment Income $32.3 $64.3
Net Income $52.9 $115.6
After Tax Realized Investment Gain (Loss) $(7.5) $(14.9)
Loss & LAE Ratio 56.8% 54.0%
Expense Ratio 29.4% 29.7%
Combined Ratio 86.2% 83.7%
Diluted Earnings Per Share $0.73 $1.59
After Tax Realized Investment Gain (Loss) Per Share $(0.10) $(0.20)
Diluted Operating Earnings Per Share $0.83 $1.79
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Philadelphia Consolidated Commercial Lines Segment
2002 2003 2004 2005 2006 2007 YTD 2008 QTD 2Q07 QTD 2Q08
473 662.3 874 960.3 1169.4 1388.2 723 321.9 364.6
CAGR 2002-2007 = 24.0%
13.3% Q/Q Growth
14.2% Y/Y Growth
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Philadelphia Consolidated Specialty Lines Segment
(Professional/Management Liability)
2002 2003 2004 2005 2006 2007 YTD 2008 QTD 2Q07 QTD 2Q08
110.2 154.1 184.4 205.3 227.6 245.2 134.3 60 65.2
CAGR 2002-2007 = 17.3%
8.7% Q/Q Growth
11.3% Y/Y Growth
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Appendix 2: Additional Information of Philadelphia
Consolidated
- Organization Chart
- Experienced Management Team
- Income Statement
- Balance Sheet
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Philadelphia Consolidated Organizational Chart
Philadelphia Consolidated's companies include four statutory entities, 7 service companies and
an investment company
All subsidiaries are owned 100%
Appendix
Philadelphia Consolidated Holding Corp.
Maguire
Insurance
Agency, Inc.
PCHC
Investment Corp.
Liberty American
Insurance Group, Inc.
Philadelphia
Indemnity Insurance
Company
Liberty American
Insurance
Agency, Inc
Philadelphia
Insurance
Company
J Maguire
Brokerage
Liberty American
Premium Finance
Company
Liberty American
Insurance
Services, Inc.
Liberty American
Select Insurance
Company
Liberty American
Insurance
Company
Gillingham and
Associates, Inc.
Holding Company
Statutory Company
Service Company
Investment Company
Philadelphia Consolidated Organizational Chart
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Experienced Management Team
Name
Position
Comment
James J. Maguire
Chief Executive Officer,
President & Director
Served as CEO since 2002 and President since
1999. Before Philadelphia Consolidated, he served
as Assistant Vice President of Underwriting at
American International Group, Inc.
James J. Maguire, Jr.
Chairman & Founder
He has served as Chairman of Philadelphia
Consolidated since its foundation. He has also
served as President until 1999 and CEO until
2002. He brings over 40 years of experience in the
insurance industry.
Sean Sweeney
Chief Marketing Officer,
Executive Vice
President & Director
Has served as Executive Vice President since
1998 and Director of Marketing since 1987. He
joined Philadelphia Consolidated in 1979 when he
served as regional Vice President, regional sales
Manager and sales representative.
Craig P. Keller
Chief Financial Officer &
Executive Vice
President
Joined Philadelphia Consolidated as VP and CFO
in 1992. He was previously employed by Reliance
Insurance Group, Inc. where he served several
financial roles including Assistant Vice President.
He is also a Certified Public Accountant.
Christopher J. Maguire
Chief Operating Officer,
Chief Underwriting
Officer & Executive Vice
President
Joined Philadelphia Consolidated in 1987. He has
served many roles throughout the company in his
21 year career including Assistant Vice President
and various underwriting positions.
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Philadelphia Consolidated Income Statement
Historical Income Statement
Appendix
Figures are on a U.S. GAAP basis.
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Philadelphia Consolidated Balance Sheet
Historical Balance Sheet
Appendix
Figures are on a U.S. GAAP basis.
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Name: Joe Barnholt
Title: Assistant Vice President, Investor Relations
Phone: 1-610-617-7626
Email: jbarnholt@phlyins.com
Company Contacts
Appendix
Tokio Marine Holdings, Inc.
Philadelphia Consolidated
Name: Toshihiko Aizawa
Title: General Manager and Group Leader,
Corporate Communications and Investor Relations Group,
Corporate Planning Department (Tokio Marine Holdings)
Phone: +81-3-6212-3422
Email: toshihiko.aizawa@tokiomarinehd.com
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