Due Diligence Checklist - PowerPoint

							Insurance Due
Diligence:
More than a Checklist

       John Munson
       Equity Risk Partners, Inc.
       November 20, 2003
    Thursday Nov. 20th M&A
•   Zebra Technologies to acquire Atlantek
    (Chicago Tribune)
•   EMI to acquire Time Warner’s music unit
    (WSJ)
•   Charles Schwab to acquire Soundview
    Technology (WSJ)
•   Ionics to acquire Ecolochem (WSJ)
•   AMC Entertainment to merge with
    Loews Cineplex (WSJ)
          Manage “Risk”
•   Opportunity for a Risk Manager to
    use all skills and resources
•   Identify all risks of a company,
    insurable or not
•   What can adversely affect your
    organization?
     Types of Transactions

•   Stock versus asset
•   Strategic versus financial
•   Control versus investment
                     The Players
1. Seller
2. Purchaser:
     a. Strategic
     b. Private Equity
     c. Lenders
     d. Venture capital
3. Lawyer
4. Accountant
5. Environmental consultant
6. IT consultant
7. Insurance advisor
                    The Process
•   Offering memorandum (seller initiated)
    •   Management presentation, Roadshow
•   Letter of intent
    •   Period of exclusivity
    •   Due diligence
    •   Financing
•   Purchase/sale agreement
•   Closing
         The “Normal” Due
         Diligence Review

1.   Gather current insurance policies
2.   Obtain Phase I environmental
3.   Obtain underwriting information
4.   Review outstanding liabilities.
5.   Historical loss information
6.   Project future costs
                 Dig Deeper
•   Significance: every $1 of costs can
    reduce a purchase price by $4+
•   Prior insurers: Reliance, Kemper,
    Home
•   Combinability of related investments
•   What you don’t currently see can ruin
    you!
    •   Prior products, divested operations
    •   Asbestos
    •   Waste disposal (environmental)
Special Insurance Clauses

•   Policy assignment
    •   Proper Named Insureds
•   Change in control
    •   Automatic run-off (target)
    •   Additional premium (acquirer)
Unique Insurance Solutions
•   Representations & warranties
    •   Tax indemnification
•   Loss mitigation – portfolio transfer
•   Claims-made runoff
•   Nose coverage
•   Key man life
            War Story #1
              Railroad products
        (asset sale out of bankruptcy)

1.   Policy assignment
2.   Fire/rehire employees
       War Story #2
   Home products manufacturer
(independent contractors/installers)

Workers’ Compensation premium
       increased 1000%
          War Story #3
    Numerous privately-held companies
         (uninsured exposures)

•    Business interruption
•    Flood, earthquake
•    Executive Liability
•    Inadequate umbrella limits for contracts with
     large retailers
Insurance Due
Diligence:
More than a Checklist

       John Munson
       Equity Risk Partners, Inc.
       November 20, 2003