UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Soliciting Material Pursuant to §240.14a-12
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Philadelphia Consolidated Holding Corp.
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Philadelphia Consolidated Holding Corp. is posting on its internal website today the following
transcript of a webcast for employees and preferred agents that was held on July 23, 2008.
Philadelphia Consolidated Holding Corp.
Corporate Speakers
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James J. Maguire Philadelphia Consolidated Holding Corp. President, CEO
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PRESENTATION
Operator: Good day, ladies and gentlemen, and welcome to the Philadelphia Insurance Companies
discussion of the merger with Tokio Marine Holdings. My name is Chantilly and I will be your
facilitator for todays call. At this time, all participants are in a listen-only mode.
(OPERATOR INSTRUCTIONS)
I would now like to turn the call over to your host for today, Mr. James J. Maguire, Jr., President
and CEO. Please proceed, sir.
James J. Maguire: Thank you very much and good morning, everyone. Today is a historic day for
Philadelphia Insurance Companies, and as Sumi-san, the CEO of Tokio Marine Group said this morning
at our 6.00 a.m. conference call in Japan, its an epic day. And I think its a very, very good
day for employees, agents, preferred agents and those of you listening in on the webcast and by
phone.
Im going to go through our partnership with Tokio Marine Holdings, talk a little bit about the
transaction that was announced early this morning. Weve posted some materials on our website,
specifically, the announcement that was made has been publicly made this morning.
For our employees and our preferred agents, we sent out letters from myself and our chairman along
with FAQs. And hopefully the FAQs, the frequently asked questions documents, can answer many of
your questions since were not going to be taking questions on this webcast because of the
number of participants, the FAQs are designed to answer a lot of your questions up front.
But if you should have any questions following the presentation, Joe Barnholt, who is our assistant
vice president of investor relations, his information is contained in this presentation. And you
can either call Joe or you can email him with your questions, and hell be happy to get back to you
with the correct responses.
We also announced our second quarter earnings today, which Im not going to go through, but suffice
to say that we continue to perform very well and we had very good growth in the quarter, very good
profitability. And this is in keeping with the PHLY culture.
Finally, I just want to thank our IT staff for coordinating this webcast. Weve made a lot of
weve had to shuffle a lot of things around very quickly to make this happen. Weve opened it up
now to all agents, not just preferred agents, as well as our employees and other people in the
public domain, so a great job by our IT staff to make this happen.
Moving to page two of the presentation, for those of you that are following along, the agenda for
todays webcast is to talk about the announcement that we made at the 3.30 a.m. release to give you
a little bit of background about Tokio Marine Holdings.
Theyre a very interesting company. Theyre very similar to Philadelphia Insurance Companies.
Its a great partnership thats fully endorsed by our chairman, myself, our executive management
team, and we think its going to give us the opportunity to take the Company to the next level.
Well talk about the combined company and what this means from a financial perspective for both
Philly and Tokio Marine Holdings, and then Ill make some closing remarks to summarize the
transaction.
Page three, todays announcement. As I mentioned, it was released at 3.30 a.m. Moving to page
four, the announcement today is, as I said, a historic announcement by Tokio Marine Holdings to
acquire 100% of the stock of Philadelphia
Insurance Companies. We still need regulatory approval from our Pennsylvania Department of
Insurance and from the Florida Office of Insurance Regulation, which we anticipate to receive over
the next 60 to 90 days.
Following that approval, the closing date is estimated to be sometime in the early fourth quarter
of this year. And at that time well become a subsidiary of Tokio Marine and Nichido Fire
Insurance Company, which is a member of Tokio Marine Holdings.
Tokio Marine and Nichido Fire carry an A++ rating from A.M. Best. They carry a AA rating from S&P.
So, its a very strong company, and were very fortunate to have the financial backing of Tokio
Marine Holdings. It creates an upside for our employees and agents, since both of our businesses
are highly complementary with little overlap.
Tokio Marine has a very small presence in the United States right now. They were looking for a
platform that provided significant organic growth, very good profitability, and the highest quality
people in the business. And when they surveyed the landscape of specialty insurance companies,
Philadelphia Insurance Company came up as number one on their list, and Im not surprised.
Were going to be their platform for U.S. growth, and once we continue to grow and penetrate our
markets further, were going to be looking across our borders, specifically into Canada, then South
America and ultimately into Europe to grow and take our business model overseas.
This provides a significant strategic opportunity for us to grow our business. We want to grow
organically first and foremost. We want to increase our market share in the existing products that
we do business, and this partnership is going to give us the ability to develop a lot of new
products as well.
Itll help us with our tactical growth strategy. And our employees know that we have a tactical
growth strategy where were looking to supplement our organic growth with acquisitions of renewal
rights fields, book rollovers, and the financial backing of Tokio Marine is going to enable us to
accomplish that. And then lastly, moving into Canada and South America and Europe, as I mentioned.
Page five, some of the details of the transaction terms. Its an all-cash acquisition of 100% of
Phillys outstanding shares. And I should point out that this acquisition is the largest
acquisition in the insurance space by a Japanese company ever. So, this is a landmark acquisition.
Its an historic occasion. We are the largest acquisition made by a Japanese company Japanese
insurance company ever.
The consideration per share at $61.50. Some of the details of the transaction, were entering into
employment agreements with the management team. These employment agreements will assure that we
remain on, and we desire to remain onboard to take this Company to the next level.
Weve got some voting approval. We have achieved voting approval from the family, our
shareholders, and named executive officers in advance of the deal. So, approximately 18% to 20% of
the stock has already been voted in favor of the deal.
And theres also a substantial investment in Tokio Marine stock by our chairman, myself, and the
executive management team because we believe this is an excellent opportunity for our Company.
The aggregate consideration for the deal, $4.7 billion. As I mentioned, we expect to close it in
the fourth quarter of 2008, and its subject to regulatory approvals and our shareholders
approval, which well conduct later this year.
Page six, a little bit about Tokio Marine Holdings. We began speaking with Tokio Marine back in
February, and weve had several meetings with their management team and with their top people, both
here in Philadelphia and overseas in Tokyo.
And theyre a very genuine group of professionals insurance professionals. They share similar
values and a similar business philosophy to Philadelphia Insurance Companies, very professional,
disciplined, and team-oriented. And I think were very fortunate to have them as partners.
Moving to slide seven, theyre a leading Tokyo based global insurer. Theyre publicly traded on
the Tokyo and Osaka Exchanges. Theyre licensed in over 40 countries, so they do have a presence
outside the United States, a significant presence in Europe, South America, and Asia. And theyve
had a and also in the UK.
Theyve had a mission to try to move into the United States market for some time, and weve been
able to successfully negotiate that with them. They have outstanding credit quality and financial
strength, and they have over $25 billion of shareholders equity.
I mentioned Tokio Marine Nichido Fire, which is the main operating subsidiary of the Tokio Marine
Group. Theyre the oldest and largest property casualty insurer in Japan, and theyre the 13th
largest insurance company worldwide. And they were founded in 1879.
So, they have a very longstanding history in insurance, theyre very well entrenched, and that
comes through in meeting their people. They have a lot of underwriting discipline. They have a
lot of respect for each other and for the business that were in, so I think this is an excellent
partnership that we have with Tokio.
Moving to page eight, besides some of the financial information of Tokio Marine, $102 billion of
assets Im sorry, $172 billion of assets, so clearly a very, very large organization. They have
just under $19 billion of net written premium, and thats grown over the last five years.
Page nine, the transaction rationale from Tokios perspective. As I mentioned, theyve wanted to
move into the U.S. This is the largest insurance market in the world with approximately $500
billion of premium potential. So, theyve wanted to move into the U.S., and theyve looked been
looking for a very good platform to expand their operations, and Philly is that platform.
They also want to take a stronger position in the international market. They recently announced an
acquisition with Kiln, which is a London based insurer and reinsurer. So were looking forward to
developing some synergies with their operation in London in terms of product overlap and
cross-selling maybe some of their products here in the U.S. and in Canada.
Page 10, Ive talked about our values in the culture and the business philosophy of our two
organizations. Both companies are best-in-breed insurers. Both have a customer-focused approach
to doing business. Were very service-oriented. We have a disciplined approach to underwriting.
And anyone that knows Philly knows that were disciplined from an underwriting perspective, having
consistently low combined ratios, and Tokio Marine shares that value.
They have a proactive approach to marketing and were very intrigued by our ability to introduce new
products and to penetrate our existing markets. So, one of the key things that were going to be
charged with going forward is to continue to grow our new products.
And weve been on the cutting edge of introducing new products. Were going to solicit our
preferred agents, our agents, our employees for new product ideas and new ways we can compete in
existing markets because this is something we want to do going forward with Tokio Marine.
They have a focus on long-term growth and profitability, and they are highly motivated also with a
team-oriented approach to the way they run their business. Growing its management team is going to
play a key role in the combined international operations.
Weve set up a strategic committee an international strategic committee to look at synergies
between ourselves, Tokio Marine in Japan and Kiln and their other operations outside of Japan. Our
chairman is going to sit on that strategic committee initially with the CEO of Tokio Marine and the
CEO of Kiln. And obviously Ill be participating as well to explore the synergies among our
organizations.
And then immediately were going to explore the Canadian market, most notably for our outdoor
guides and outfitters product, a Gillingham products if you will, and our nonprofit social service
products. So, were in a mode here where were going to try to expand our operations, both in the
U.S. and across the border initially in Canada.
Moving to page 12, the combined company. Philly is stronger and positioned for growth. We have
the financial backing of $172 billion of assets and $25 billion of equity. We have an expanded
risk appetite in our niches as well.
Because were no longer going to be a public company and we dont have to manage profitability from
quarter to quarter, we can now take a longer-term view towards profitability. And what that means
is re-looking at the way we write business.
The underwriting guidelines will change as a result of this acquisition, and our risk appetite is
going to change also. All these things are positive for our employees, and theyre positive for
our producers.
Were looking at the potential increased limit capability for our larger accounts, and we
anticipate that reinsurance synergies will exist between ourselves and Tokio Marine, which is going
to mean increased profitability.
Well be a potential for opportunistic growth, and I think everyone on this call is going to be
charged with taking this Company to the next level as a result of our partnership. We have one of
the best distribution networks in the country among all of our peer insurance companies, and its a
great opportunity for us to take it to the next level to try to grow all of our products more than
weve grown in the past.
We have Tokio Marines capital and financial strength, which means that we potentially will be
upgraded by A.M. Best to A++, potentially be upgraded by S&P and Moodys to AA and AA2. So, were
going to have the strongest ratings in the industry to compete. Then lastly, well have an
expanded international presence, as I mentioned, in Canada, South America, and ultimately Europe.
Page 13, the combined company means business as usual. So, for our agents that are listening in
and our preferred agents, nothings changing. As a matter of fact, things are going to get better.
Were going to offer a lot more in the way of products, and, as I mentioned, from an underwriting
appetite were going to be able to provide some more flexibility from an underwriting perspective.
All these things are good for you, our producers.
Were going to solicit your ideas on exploring new ways to grow because were looking to grow,
were looking to continue to have the same profitability that weve had historically, and were
going to need your help and your assistance in accomplishing that.
From an employee perspective, the benefits, the insurance along with day-to-day responsibilities
are going to remain unchanged. Preferred agent compensation, including our profit sharing, remains
unchanged. And our growth and profitability goals are going to be consistent after the transaction
is completed in the fourth quarter of 2008.
As I mentioned, were going to be stronger. The Philly brand is stronger as a result of this
partnership. An A++ A.M. Best rating is likely, a AA S&P rated parent company means a strong
financial backing for us to help weather the soft market cycles and to be more competitive in the
niches that we compete in.
We now have 56 offices across the country. Tokio Marine has nine offices in the U.S., but we have
47. The total employees total 1,940 employees. Tokio Marine currently has 470 employees across
the United States. So, theres going to be some good synergy and theres going to be some good
complementary teamwork working with the Tokio Marine people in offices across the country.
Page 14, the net written premium for Philly, $1.5 billion with approximately 1400 employees. Kiln,
which is their London based insurance/reinsurance operation, writes approximately $565 million of
net written premiums and 380 employees.
So, this is going to give the Tokio Marine Group scale outside of Japan with just under $5.5
billion of net written premium, overseas employees just under 10,000, thats worldwide outside of
Japan, and operation in roughly 36 countries in 260 offices.
Page 15, the net written premium after the deal is closed implies $5.6 billion of net written
premium, when you include Philly, and $667 million of adjusted earnings whereby we represent
approximately half of their earnings outside of Japan. So, were clearly a significant part of
Tokio Marines operations outside of Japan.
Page 16, opportunistic growth. That is the main thrust of what Tokio Marine is trying to
accomplish here, and through their superior credit ratings and financial strength, this is going to
help Philly become better and take it to the next level. Were going to be able to introduce more
new products, which means increased organic growth.
Were going to be able to accelerate acquisition of our books of business, the tactical growth,
renewal rights deals as a result of their backing. Were going to relook at our reinsurance
structure and reinsurance treaties because utilizing Tokio Marine could mean higher net retentions
where it makes sense, which could lead to increased profitability.
And a new, efficient management of our CAT risks and PMLs. Now that were part of a bigger
organization, we can spread our CAT risks more. We can manage our probable maximum loses better as
a result of being backed by a large parent. And this implies more and more creative premium and
underwriting in areas that historically we may have shied away from.
At the bottom of this slide you can see the ratings by S&P, Moodys and A.M. Best of the Tokio
Marine subsidiaries and Philly. The combination of Philly and Kiln is going to give Tokio Marine
superior strength outside Japan, and I think that has been a strategic mission of Mr. Sumi, whos
the CEO of Tokio Marine, for some time now.
Kiln is a best-of-breed insurer in the UK. Philly is a best-of-breed insurer in the United States.
And the International Strategic Committee is going to bring all these three components together to
maximize the strengths of each of the individual companies.
Page 18, next step is integration. Philly and our partners, we need to continue to execute on our
strategy of delivering high quality products and services to our targeted markets. Thats not
going to change. Thats a core competency, thats a core strategy of our Company, and we need to
keep that in place and move forward. Thats a big part of what were going to need to do going
forward.
Philly, our employees and partners become the U.S. platform for Tokio Marine Holdings with the
consistent growth and profitability goals that weve had historically. We now have an access to
have access to a wealth of international resources, allowing for immediate entry into our Canadian
neighbors markets. And weve already begun to have discussions with Tokio Marine about having
meetings in Toronto to begin to explore moving into that market.
And then lastly, were going to explore business opportunities with Tokio Marines U.S. operations
outside the U.S. operation with a goal of cross-selling her customers. Most of the U.S. customers
that Tokio Marine currently writes are Japanese companies. There may be some overlap, there may be
some cross-selling opportunities with those clients. And to the extent that those exist, were
going to take advantage of those.
Closing remarks on page 20. Its an exciting opportunity for Philly. We have a strong financial
partner thats going to facilitate growth in our current product lines and the new product lines.
We now have the financial muscle behind us so that when we come up against a Travelers, or a Chubb,
or an AIG, we now have $170 billion of assets behind us.
We have the A++ A.M. Best rating, we have the AA S&P rating most likely will have that to
compete with these large insurance companies. Were going to have an enhanced appetite for growth
through book rollovers and renewal rights transactions. This is our tactical growth initiative,
and Tokio Marine is 100% behind us with this initiative.
Its business as usual. Theres no changes to our operating business model for our employees, for
our preferred agents, or our agents. If anything, we want to take this to the next level. So,
theres nothing that we cant do. The skys the limit now that we have the backing of this big,
large, financially strong partner.
And were strengthening our brand. Now that we have 56 offices across the country, nearly 2,000
employees in the U.S., were stronger and were better now than weve ever been. Lastly, we have
the opportunity to expand across our borders by and our goal here is to become the premier, the
preeminent global specialty insurance company.
I think I speak on behalf of our Board of Directors and our senior management here when I say were
very excited about the opportunity. Its a great opportunity for us to take this Company to the
next level, to grow here in the U.S. and outside the U.S., and were fortunate to have a premier
partner in the way of Tokio Marine Holdings Group.
That concludes the webcast for this morning. As I mentioned, you can send emails or you may call
Joe Barnholt with additional questions. Joe will pass the questions onto myself and the management
team here, and well get back to you as quickly as possible.
But again, I think this is an historic day. Its an epic day for Tokio Marine and for Philadelphia
Insurance Companies, and I know I speak for everyone when I say were very excited to have them as
partners. Thank you very much.
Operator: Thank you for your participation in todays conference. This concludes the presentation.
You may now disconnect. Good day.
Additional Information and Where to Find It
This communication may be deemed solicitation material in respect of the proposed acquisition of
PHLY by Tokio Marine. In connection with the proposed acquisition, PHLY intends to file relevant
materials with the SEC, including PHLYs proxy statement on Schedule 14A. WE URGE SHAREHOLDERS OF
PHLY TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE, INCLUDING PHLYS
PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain copies of the proxy statement (when
available) as well as other filed documents containing information about PHLY free of charge at the
SECs web site, http://www.sec.gov, and shareholders of PHLY will receive information at an
appropriate time on how to obtain transaction-related documents for free from PHLY. Such documents
are not currently available. Free copies of PHLYs SEC filings are also available from PHLY, One
Bala Plaza, Suite 100, Bala Cynwyd, PA 19004, Attention: Joseph Barnholt.
Participants in the Solicitation
PHLY, and its directors and executive officers, and Tokio Marine, and its directors and executive
officers, may be deemed to be participants in the solicitation of proxies from the holders of
PHLYs common stock in respect of the proposed transaction. Information about PHLYs directors and
executive officers is set forth in the proxy statement for PHLYs 2008 Annual Meeting of
Shareholders, which was filed with the SEC on April 15, 2008. Information about the directors and
executive officers of Tokio Marine is set forth in its Schedule 13D filing with the SEC with
respect to PHLYs shares. Shareholders and investors may obtain additional information regarding
the interest of such participants by reading the proxy statement regarding the acquisition when it
becomes available.
Forward-Looking Statements
Statements included in this communication that are not historical facts are forward-looking
statements within the meaning of the federal securities laws, including the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include statements regarding
expectations as to the completion of the Merger and the other transactions contemplated by the
Merger Agreement. Forward-looking statements are based on our current expectations and beliefs
concerning future events and involve risks, uncertainties and assumptions. The factors that could
cause actual results to differ materially include, in addition to Risk Factors referred to in
filings made with the Securities and Exchange Commission (SEC), 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 PHLY; 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. PHLY and Tokio Marine assume no obligation to, and expressly
disclaim any obligation, to update the information in this release, 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.
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