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When it comes to your reputation, how you do things matters more than what you do. Your ability to get things done right will depend upon treating people right.
Employees admire strong leadership, especially in times of crisis. Think of three examples of how you led by example in a time of crisis.
A leader’s responsibility is to always do right by the people he or she leads.
In a world of growing uncertainty one thing is certain: We have a need for critical thinkers who can size up the situation, realize the potential where others may not, and seize opportunities through prompt decision making.
Critical thinking is the ability to evaluate options, weigh alternatives, and make better informed decisions.
You need to get comfortable with operating in an environment where change is constant and rapid decisions are required.
As prescription drug prices continue to rise, so does CEO pay. The 25 highest paid CEOs are listed below.
| CEO | Company | Total Pay |
| Ari Bousbib | Iqvia Holdings | $38,029,517 |
| Brenton Saunders | Allergan | $32,827,626 |
| Alex Gorsky | Johnson & Johnson | $29,802,564 |
| Ian Read | Pfizer Inc | $27,913,775 |
| Leonard Schleifer | Regeneron | $26,508,058 |
| Richard Gonzalez | Abbvie | $22,625,243 |
| Marc Casper | Thermo Fisher | $22,275,176 |
| Giovanni Caforio | Bristol Myers Squibb | $18,687,123 |
| Howard Robin | Nektar Therapeutics | $18,097,411 |
| Kenneth Frazier | Merck | $17,643,087 |
| Jeffrey Leiden | Vertex | $17,227,301 |
| Robert Bradway | Amgen | $16,899,789 |
| Herve Hoppenot | Incyte | $16,087,031 |
| Ricks David | Eli Lilly | $15,845,991 |
| John Mulligan | Gilead Sciences | $15,438,459 |
| Michel Vounatsos | Biogen | $13,664,373 |
| Mark Alles | Celgene | $13,115,985 |
| Heather Bresch | Mylan | $12,744,397 |
| Robert Friel | Perkinelmer | $11,365,597 |
| Juan Ramon Alaix | Zoetis | $10,528,769 |
| Michael McMullen | Agilent Technologies | $10,090,661 |
| Francis Desouza | Illumina | $8,807,716 |
| John Hendrickson | Perrigo | $8,322,228 |
| Christopher O’Connell | Waters Corp | $7,599,988 |
| Oliver Filliol | Mettler Toledo | $7,259,085 |
This morning I lost a special person in my life. It’s not often that someone has such a profound impact on your life, but Ronald Agypt had that impact on me. Eleven years ago, I met this man at 7:30 am for breakfast in Columbus, Georgia for a job interview. Little did I know that my life would be changed forever.
Ronnie exuded humility, kindness, gentleness, generosity, respect, humanity, passion and valuable insight. Ronnie was both a visionary leader and a catalyst for making big, impactful changes occur. (Carpe Diem)
If I could sum Ronnie up in one word, it would be grace. He was unstinting in the amount of time and advice he was prepared to give, he gave me unfailingly good and thoughtful advice on a broad range of topics and always asked how I was doing,
Three weeks ago, we were on the phone having one of our many catch-up calls when he broke the news to me about the status of his cancer. He showed once again the resiliency that he had. He said, “Jeff, I’m not going to make it. The medication is no longer working, and I have a short time remaining. I told Ronnie how sorry I was to hear the news and I wish I could do something to help. He said, Jeff, I’ve accepted the news and I’m ready for that day to come. I’ve lived a great life with a great family and been blessed with many friends around the world, like you. It’s been a good fight, and I’m comfortable with the decision.” We chatted some more, and he could tell that I was in tears and he said, “Jeffrey, it’s ok.” I knew then that he knew that he fought a great fight and he really was comfortable with his decision.
To Kim and the boys, there is nothing that I can say about my friend that you don’t already know about your husband and father. His legacy will outlive us all and so will his memories and great smile.
Ronnie, I will see you again my friend.
Jeff Hyman
The insurance distribution segment is made up of more than 30,000 brokerage agencies with many medium- to small-scale agencies. Many of are often lacking the financial or technology infrastructures of larger competitors, and in many instances, the agencies are populated with agents nearing retirement.
The average age of brokerage executives is 60 years old, and the U.S. Bureau of Labor Statistics indicated that nearly 700,000 insurance professionals currently are 55 years old or older. In addition, 400,000 brokerage employees are expected to retire within the next five years. In 2017, there were approximately 1.1 million insurance agents, brokers and service employees in the United States according to industry data.
Private Equity Growth
Private Equity backed funding is nothing new to the insurance brokerage segment, but it has been very prominent over the last seven years. Mergers and acquisitions of insurance agencies in 2017 totaled 604, a 31 percent increase over 2016 according to industry data. In 2017, private equity/hybrid buyers accounted for 382 transactions, 63 percent of the total, compared with 56 percent in 2016.
M&A activity in 2018 was very strong although I believe when the final numbers are reported for 2018, the number of acquisitions will be slightly less than 2017, but the private equity-backed acquisitions will most likely exceed 60 percent.
Early indications are that eight of the top 10 buyers in 2018 are private equity-backed firms compared to 2008 when only four of the top 10 had private equity funding.
In 2016, private equity-backed companies completed 55% of all broker acquisitions. Nine out of the top 10 acquiring companies across 2015 and 2016 were private equity-backed firms. Gallagher & Company was the only public company on the mega-buyers list.
Between January 01, 2010 and December 31, 2016, Gallagher completed almost 300 acquisitions. In 2017, Gallagher completed 39 transactions, more than half of which were within its US retail P&C and benefits operations, and in the first half of 2018, the company made 18 acquisitions, and 12 in the 2nd half of 2018.
You don’t have to look any further than Caledonia, Michigan-based Acrisure to see the positive impact from the right private equity funding partnership. Greg Williams, founder of Acrisure, has become the most prolific acquirer in the U.S. Williams and his team made over 100 acquisitions in 2018 and has made more than 400 acquisitions since 2013. Williams acquisition strategy has grown Acrisure’s annual revenue from $650 million to $1.5 billion in two years and increased the company’s enterprise value to more than $7 billion today from $2.6 billion in 2016.
Acrisure has plenty of “dry powder” after a $2 billion investment by GSO Capital Partners and Harvest Partners SCF LP, both based in New York City, and Switzerland-based Partners Group late last year, so I expect that Acrisure will be active in 2019.
Industry data indicates that private equity firms’ “dry powder’’—the amount raised by firms that is not yet invested—is slightly over $1 trillion, according to a report in December of 2017 by Preqin. This is a clear indication that there is plenty of private equity funding available and no obvious ending in sight for the continued M&A activity and valuations.
Should I sell or Not?
Private equity firms are the new bankers for insurance brokerages. The valuations right now are at an all-time high, and that’s good for the seller. While price is important, a strong culture fit is critical too.
The last four years has seen the value continue to increase. Looking back to 2015 activity, the average base selling price was a pro forma EBITDA multiple of 7.6x and based on the early data on 2018 sales and my personal knowledge of over 90 closed deals; the multiple increased to about 8.71. That means that the potential maximum payout for the 2015 sellers could reach 10.31x and the 2018 sellers could see a pro forma EBITDA multiple of 11.01.
With over $1 trillion of “dry powder” available, the next few years will see a lot of M&A activities.
As an user of miEdge, I am very happy with the health & welfare, property & casualty, and retirement solutions that miEdge offers. The attached video will recap a meeting I had today with a national firm talking about their U.S. Strategy. They were impressed with my level of knowledge about their U.S. book of business, and understanding how they should attack certain other carriers and brokers book of business.
I owe thanks to Mark Smith and Darin Vick at miEdge for their partnership with me over the last three years. The access to accurate and current data gives me, and other miEdge users The Ultimate Unfair Advantage over those who are not willing to invest in their business. Trust me, if you are not using miEdge, other brokers and carriers who are will be knocking on the doors of your accounts soon with a wealth of intelligence.
Thank you Mark Smith and Darin Vick!
Last week my post, Aflac: Behind the Numbers created emails and phone calls from many different people in regards to lapses and persistency. We all understand that lapse policies is a part of our industry, no matter what product segment we may be in. That being said, there are expectations and certain actuarial assumptions that are used when products are filed in each state.
Below is the definition listed in Aflac’s glossary regarding persistency.
Aflac definition of persistency – Percentage of premiums remaining in force at the end of a period, usually one year. For example, 95% persistency would mean that 95% of the premiums in force at the beginning of the period were still in force at the end of the period.
One of the emails I received last week said, “ Mr. Hyman, is it possible that Aflac has had more lapsed premiums in a year than they had sales?” So here is my answer after carefully researching Aflac’s SEC filings.
Aflac has had a very long history of high lapsed policies. I went back to 1993 and reviewed my data from SEC filings that showed the following data –
Sales year, annualized premiums in force beginning of year, new sales premium (including conversions), premiums lapsed and annualized premiums in force, end of year.
For 2017, annualized premiums in force was $5,896 billion
New sales, including conversions, of $1,552 billion
Premiums lapsed was ($1,525) billion
Annualized premiums in force, end of year was $6,052 billion
In 2016, annualized premiums in force was $5,760 billion
New sales of $1,482 billion
Premiums lapsed ($1,479)
Annualized premiums in force, end of year $5,896
In 2015, annualized premium in force was $5,668 billion
New sales of $1,487 billion
Premiums lapsed ($1,526)
Annualized premiums in force, end of year $5,760 billion
Since 1993, Aflac U.S. has had the following:
New Sales Premium – $26,491,000,000
Premiums Lapsed – $23,139,000,000 (87.34% of new sales premiums)
Since 2009, premiums lapsed exceeded new sales premiums in 2009, 2010, 2013, 2014 & 2015.
Aflac had $6,052 billion of inforce premium at the end of 2017. A 1% improvement in persistency is worth $60 million in premium. I reviewed Aflac’s pretax rate for each year since 1993. Based on 2017’s pretax rate of 19.8%, a 1% improvement in persistency equals about $12 million in pretax profits.
Last year, Aflac’s persistency was 77.5% (before inclusions). The ideal persistency would be 82.5%. A 5% improvement in persistency is equivalent to an additional $300 million a year in premium and about $60 million in additional pretax profits.
I am confident that Aflac will get this under control and over a period of time, we will see a big improvement in persistency.
In the United States, Aflac has earned the distinction of being the number one provider of voluntary/worksite insurance at the worksite when measured by annual premium and market share. Aflac is an excellent company, financially sound, more than 70,000 licensed sales associates, a growing Broker Sales segment and the iconic Aflac duck.
Aflac Career Segment
At Aflac, the career segment success hinges upon the number of recruited agents, the number of producing agents and the average productivity per producing agent.
From 2001 through 2017, Aflac recruited over 341,000 career associates and 36,262, brokers. In 2001, Aflac had an average of 13,089 licensed sales associates, who on average, produced business on a weekly basis with an average production of $70,319.
In 2017, Aflac had an average of 8,809 licensed sales associates produce business with an average production of $176,183. The 2017 numbers includes brokers production.
Aflac from 2000 – 2017
• In 2000, the Aflac Duck was born, and Aflac saw growth of 28.3% while the industry increased 19.23%.
• In 2001, new sales increased of 29.07% while the industry saw growth of 12.90%.
• In 2002, new sales increased of 16.4% and hit the $1 billion mark while the industry increased 15.05%.
• In 2003, new sales increased 5.4 % and outpaced the industry which increased 1.81%.
• In 2004, new sales increased 5.1% and the industry increased by 3.00%.
• In 2005, new sales increased 6.16%, and the industry increased 3.4%.
• In 2006, new sales increased 13.3%, and the industry saw a 7.99% increase.
• In 2007, new sales increased to $1,558 billion, a 9.48% increase and the industry had a 4.63% increase. Aflac had a 30.92% market share.
• In 2008, new sales had a slight decrease to 1,551 billion although the industry had an increase of 3.71%.
• Also in 2008, Aflac hired a management team to launch Aflac for Brokers with a launch date of January 1, 2009. This was the beginning of a strong focus on growing broker sales and having two distinct distribution systems. Prior to 2009, broker business was managed by the Aflac independent field force. Broker sales had decreased from $202 million in 2002 to $180 million in 2008 for a CAGR of (-1.90%).
• In 2009, the career segment produced $1,250 billion in new sales while broker sales produced $203 million. Career sales had a decrease of $121 million in 2009.
• In October of 2009, Aflac acquired Continental American Insurance Company located in Columbia, SC which added group products for Aflac.
• In 2010, career agents produced $1,106 billion in new sales while the broker segment increased to $276 million in new sales. Career sales had a decrease of $144 million.
• In 2011, career segment increased new sales to $1,152 billion, and broker sales increased to $325 million.
• In 2012, career segment had a slight decrease down to $1,116 billion, and broker sales increased to $372 million.
• In 2013, career sales had a new sales decrease to $1,068 billion, and broker sales had a decrease down to $356 million.
• In 2014, career sales had its third straight decrease producing 1,003 billion in new sales premium. Broker sales increased new sales to $430 million and was 30% of Aflac’s new sales.
• In 2015, career sales had a slight increase in new sales to $1,012 billion, and broker sales increased to $475 million, 32% of Aflac’s total new sales.
• In 2016, career sales decreased (1.88%) to $993 million in new sales. Broker sales increased to $489 million in new sales.
• In 2017, career sales increased to $1,009, and broker sales increased to $543 million. Broker sales is now 35% of Aflac new sales.
Aflac’s career segment CAGR is (-3.35%) percent since 2008. In that time period, the career segment has recruited more than 193,334 new associates.
Market Share – Industry
Since 2007, the voluntary/worksite industry has had growth of 4.92% CAGR. Aflac U.S. had a (-0.04%) CAGR in the same time period.
In 2007, Aflac enjoyed a 30.9 percent market share in a $4.7 billion industry. Today, Aflac’s market share has decreased to 19.6 percent while the industry has increased to $8.1 billion in new sales.
MetLife, who is ranked 2nd behind Aflac has increased its new sales from $247 million in 2007 to $1,129 billion in new sales in 2017 and a 14% market share.
While it’s very clear that the Aflac career segment has had their struggles, even with such, its worth noting that if the career distribution was a separate company, their career distribution would have had the largest market share in the industry each year until 2017. In 2017, the career segment would have had a 12.39% market share.
Aflac for Brokers Segment
In October of 2009, Aflac acquired Continental American Insurance Company. CAIC, now known as Aflac Group was a very small company in the voluntary/worksite industry with a 1% market share in 2009.
Aflac’s acquisition of CAIC was a very strategic one, and it allowed Aflac to expand its product line. The addition of CAIC group products allowed the sales associates and brokers to compete in the group space. Along with the acquisition, a national distribution of over 800 brokers came with it. CAIC, while small, had strategic relationships that the Aflac field distribution had not been successful in developing in past years.
Since the launch of Aflac for Brokers, Aflac has contracted 36,232 brokers and broker sales has increased new sales premium from $180 million in 2008 to $543 million in 2017. Brokers sales CAGR is 13.05% in that time period.
If Aflac’s Broker segment was a separate company, they would have the fourth largest market share at 6.6% and only trail MetLife at 13.9%, Aflac career at 12.39%, (assuming the career segment was a separate company) and Unum at 6.9%.
Persistency
Many insurance companies are faced with persistency challenges, so this is an ongoing challenge in the industry. Takeover business is about 58% of new sales in the industry, up from 12% in 2006.
That being said, Aflac’s lower persistency has cost them more than one hundred million in profits based on their last twelve years. In that time period, persistency has been between 72.2% – 77.5%.
There are many underlying factors that contributes to low persistency. With most major group insurance companies going down to 5 lives, that puts Aflac’s individual products at high risk for replacement. The same could be said about Colonial and other carriers who over the years have sold individual products before moving to group platforms. For instance;
Colonial’s persistency the last seven years has been from a low of 73.8% – 75.7% for their accident, sickness, and disability products.
Colonial’s persistency for their cancer and critical plans have been between 81.2% – 85.7% in the same time period.
Unum’s persistency the last seven years has been from a low of 75.9% – 80.5% for their voluntary benefits products.
Unum’s persistency for group life in the same time period has been from 88.0% – 90.8%.
Unum’s group disability has been between 87.2% – 92.1% and their group short-term disability between 86.6% – 89.9%.
MetLife has about $10 billion of inforce premium, and Aflac’s last annual statement shows $6,052 billion inforce. They are about 38% of the inforce premium in the industry. A one percent move in persistency is a big number.
One final stat – in a typical year, it takes the first ten months of Aflac’s new sales premium to offset its annual lapses. From 2006 -2017, in-force premium has increased from $4.1 billion in 2006 to $6.0 billion in 2017. In that same time period, Aflac has written $17.427 billion of new sales premium.
Outlook for Aflac
I believe that Aflac will get it right on the career side, but they have a road with many bumps and curves along the way for them to regain the success they once had. Broker sales will continue to grow, and I believe broker sales will hit $600 million in new sales premium in 2018. If so, Aflac has the opportunity to hit a record, $1.6 billion in new sales for the year.
Full disclosure
I am a fan of Aflac, a former officer and a current shareholder. My comments are based on my own knowledge of Aflac from reading the last twenty years of quarterly, annual and 10-K reports.
Critical Illness insurance continues to grow as employers look for ways to offer their employees solutions to help fill the gap with increasing out-of-pocket costs.
Critical Illness and other voluntary benefits are a cost-efficient way to provide additional coverage to employees at a lower group rate than purchasing an individual critical illness plan.
This survey produced some interesting findings about the current state of critical illness products offerings to employers, the distribution methods and a lack of understanding by many agents and brokers on the value of critical illness.
About the survey
The critical illness survey was conducted between January 8, 2018, and February 9, 2018. A total of 511 employers responded representing 5.4 million employees.
Some of the findings are below:
About the author
Jeff Hyman is a recognized and respected insurance executive with a proven track record of developing and leading the execution of business plans and sales strategies that deliver growth and bottom line results. Jeff’s background includes leadership roles at Willis Towers Watson, Aflac, and General Electric.
Jeff Hyman can be reached at jhyman@jeffhyman.net