CONTINGENT RISKS

Whilst Warranty & Indemnity (Reps & Warranties) Insurance typically covers ‘unknown’ risks, clients can face ‘known’ risks which can impede the transaction.  These contingent M&A risks which are identified vary from deal to deal and the underwriter can sometimes take a different approach from the parties on a deal.  An example of this was where neither party to the transaction could agree the potential liability relating to employment obligations in a care home business; our contingent risk insurance bridged the gap between the seller and buyer, enabling the transaction to proceed.

The team

With contingent M&A risks being so varied and frequently becoming an issue at a time critical moment in a transaction, it is important that the underwriters can quickly assess the risks and tailor a specific cover for the client.

 

Our market-leading team of highly experienced and specialist underwriters with decades of relevant underwriting and M&A professional experience which includes: litigation, intellectual property, financial and tax due diligence and corporate law, is well equipped to work on contingent risk solutions.

Contingent Risks insurance

  • can enable transactions to proceed which would otherwise falter

  • can enable a fast and efficient distribution of sellers’ proceeds

  • protects a seller’s sales proceeds against price reductions

  • can provide a greater financial covenant than most sellers

  • avoids lengthy escrow arrangements

  • breaks deadlock between parties

  • can protect individuals (and their estates) against personal liability

  • provides economic recourse to highly-rated insurance institutions with excellent claims records and can provide the recourse required by a buyer’s risk committee

  • Policy period designed to match the liability period (typically up to 7 years);

  • Protects either the sellers, target company or the buyer for the liabilities/losses suffered from the identified risk(s);

  • Buyer policies give protection against the risk of seller fraud;

Size of risk

We insure M&A contingent risks ranging in value from £250,000 upwards and can provide limits of insurance liability up to £100,000,000 per policy. Every policy is bespoke for the deal and the risks at stake: we work with clients and their advisors to be a pragmatic, innovative and responsive partner in their transaction.

The process

We are approached by clients and their M&A advisers via their brokers (most of whom have their own M&A specialist broker) with a summary of the ‘known’ M&A risk and their insurance needs.

 

We analyse the ‘known’ M&A risks in-house and seek external soundings from our panel of expert advisers if necessary on a specific issue. We usually produce our indicative pricing and terms (a “Non Binding Indication or NBI” within 48 hours).

 

We are usually provided with an expense agreement to then proceed to full underwriting, which includes our secondary review of the due diligence analysis of the identified risk(s). With our own expertise and network of external advisors in multiple jurisdictions (where necessary) we produce a set of underwriting questions promptly in order to enable us to better understand the risk and a client meeting or call is an efficient way to quickly finalise our analysis.

 

We also produce a bespoke policy wording, which specifically insures the M&A risk(s) being faced.

 

The contingent risks policy is frequently seen as a “deal critical” tool and the policy typically covers:

  • known liabilities identified and defined

  • interest

  • penalties

  • defence costs

  • pre-agreed emergency defence costs

  • gross-up in the event the insurance proceeds were to be subject to tax

 

Our market-leading expertise in specific tax liabilities and contingencies means that we are often able to provide additional, specific coverages for known risks identified during the buyer’s due diligence of the target business.  This can be extremely effective at breaking deadlock or reducing tension during a sales process. We understand M&A and are here to help. That is why we have become a trusted partner to our brokers, clients and their advisors.

Premium

Pricing of risk is determined by a multitude of factors including the specific issues and the likelihood of them crystalizing, along with the relevant jurisdiction.

Claims

 

We are a reliable and responsive partner when claims arise – please see Claims for further information on the claims process.