According to the Risk and Insurance Management Society, regardless of the economic cycle, corporate transactions are always taking place, whether through mergers, acquisitions, or, in a recent trend, marriages between financial institutions arranged by the Treasury and the Federal Reserve. These transactions often have at least one common complication: insurance. These complex mergers and their insurance implications are often overlooked. However, insurance issues with these deals have plenty of repercussions on a joining businesses.
Especially as existing issues come to light during a merger or acquisition, the right Directors and Officers Liability Insurance policy is needed to ensure prior acts are covered and that all claims have been filed so there are no surprises (including fraudulent crime losses). Here are other ways to prevent additional insurance concerns during M&A’s.
#1: Determine ownership of insurance.
One of the most important starting points is to arrive at an express written agreement as to what insurance policies will be part of the acquisition. (For example, who will own the insurance policies?) Creating an inventory of policies starting with the present and going back as far as possible is a good way to determine what insurance assets will be transferred, says the article. This will prevent competing claims from coming in by former stakeholders.
#2: Avoid any surprises.
Due diligence of the state of the company and any pending litigation is required during the M&A. Ensure all pending claims are covered by the coinciding insurance policy and determine if there are any insurance disputes, as well. For pending cases, ensure all information has been provided and time sensitive cases are managed. In addition, if dealing with property, crime and even some liability policies, RM Magazine states to ask whether are there suit limitation clauses that might prevent action to recover insurance benefits and if the policies in question call for notice or additional premium to the underwriter if there is a change in control of the policyholder.
#3: Consider reps and warranties.
It’s advised that the acquiring company get written consent that all premiums have been paid, no retros or premium cost adjustments are made as of the signed date, and the policies are in full effect and have not been depleted. Bear in mind that representations and warranties are largely beneficial in defending against threats that have not yet turned into lawsuits.
Financial Guaranty Insurance Brokers (FGIB) works with top-tier insurers that specialize in writing Directors & Officers (D&O) Liability insurance programs for community banks, commercial lenders, Financial Technology (FinTech) companies and other financial institutions. We create custom tailored solutions that are suited to your specific needs. For more information, contact our experts today at (877) 485-4413.