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Mergers & Acquisitions

A deep understanding of organisations, their people,
culture and risk profile.

Insurance due diligence

What is M&A Insurance due diligence?

Insurance due diligence helps companies assess historic, current and future risk exposures and insurance costs.

It’s designed to identify any risk and insurance issues prior to a transaction, ensuring financial implications are understood and included in the negotiation or modelled where appropriate.

The M&A insurance due diligence process

The Willis Towers Watson team will work with other advisers during the process and will:

  • Evaluate the company’s current and future risk profile
  • Review current and proposed risk transfer and risk retention arrangements
  • Review and analyse historic claims and liabilities
  • Identify future risk transfer (insurance) options and their potential costs
  • Identify statutory compliance requirements
  • Identify and quantify contingent liabilities
  • Identify relevant sale and purchase issues
  • Comment on quality and sufficiency of the disclosed information
  • Deliver due diligence reports including executive summaries.

Who should be interested in M&A Insurance due diligence?

Buyer side:

Insurance due diligence is usually an acquisition cost for a buyer as part of the wider transaction review process. It provides the buyer’s investment committee with relevant operational risk and liability information on the target company.

Seller side:

Insurance due diligence can be used by a seller to help prepare for a sale, removing any obstacles or potential price-chip issues prior to entering the sale process.

What are the benefits of M&A Insurance due diligence?

Insurance due diligence enables parties to:

  • Assess the appropriateness of the target’s current and the future (proposed) insurance arrangements
  • Identify the financial impact of the current and future anticipated total insurance costs
  • Establish any areas of potential improvement in the target’s insurances which may be considered prudent
  • Appropriately structure the insurance clauses within the Sale & Purchase Agreement.

Insurance due diligence is often undertaken as part of an M&A process in parallel with placement of Transactional Risk Insurance.

Case study 1 - A UK-based private equity house buying a European engineering firm with global JV manufacturing facilities.

Management advised insurance costs of EUR400,000 which was included in the model.

After due diligence review it was identified by the Willis Towers Watson M&A team that one of the company's major facilities was underinsured and had material risk improvement capex outstanding and unaccounted. In addition, another of the company's other main facilities was uninsured.

Working with the London and local Willis Towers Watson M&A teams, future costs were correctly evaluated and therefore modelled at EUR550,000 with EUR250,000 one-off capex costs – none of which would have been identified without the due diligence review.

Case study 2 - A European private equity house buying a professional services and advisory firm with global offices.

Each of the company’s offices had local contracts with differing minimum insurance obligations, which were not reflected in the fragmented and locally arranged insurances.

Management advised insurance costs of EUR215,000 which were included in the model.

The Willis Towers Watson M&A due diligence team reviewed all the local contracts, identifying non-compliances, and proposed a replacement (and contractually compliant) Master programme with local paperwork where needed. This resulted in a reduced insurance cost of EUR175,000.