| M&A, Bankruptcy, and Insurance (Part 2) | |||
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Financial products considerations In this section on financial products considerations, we will look at risk finance and balance sheet and income statement protection. The following areas of insurance are generally reserved for large M&As in which risk reduction or transfer involves multiple millions if not billions of dollars: These are expensive insurance solutions with a limited market provided by insurers such as AIG, Zurich, ACE, Excel, Lloyds, Chubb, CNA, and Atlantic Mutual. These different insurers don't tend to offer the full range of all these products. Insurance such as Property Transfer Pollution Coverage and Excess Clean-up Cost Pollution Coverage also may be appropriate for M&A transactions. Enterprise Earnings Protection Insurance (EEPI) Enterprise Earnings Protection Insurance is for publicly held companies to protect themselves against earnings disruptions, volatility, and adverse results. EEPI responds if the insured corporation fails to meet its agreed upon earnings, which are determined during the underwriting process. Coverage includes: This policy also serves to cover risk associated with weather-related events and natural and man-made disasters. A pre-set percentage due to loses can be covered by the policy; it will provide a cash payment above a pre-determined amount to cover the earnings shortfall. This policy can increase shareholders value and improve a company's ability to secure more favorable financing. M&A Loss Portfolio Transfer Coverage (LPT) This product is used to free up and improve a balance sheet or reduce uncertainty to loss by transferring the outstanding reserves of the client's claims that they have to an insurance carrier for a price that the insured considers to be less than the amount carried as a liability on their balance sheet. The premiums are tax deductible. Coverage is very helpful in a merger situation or just to improve the market value of the company. M&A Aborted Bid Costs Insurance This policy reimburses the insured for direct cost associated with an agreed transaction that has been aborted for identifiable reasons outside the control of the insured. Covered events include: Covered expenses include: Representations and Warranty Coverage M&A transactions generally require the seller to indemnity the buyer for breaches of the representations and warranties made in the purchase and sale agreement. This coverage protects the Buyer in the event that the Seller fails to pay all or any part of a financial loss for a breach of a representation or warranty made in the acquisition document. This coverage can also eliminate the buyer's collateral requirement against the seller. Tax Liability Insurance Tax Liability Insurance helps the company reduce or eliminate a contingent tax exposure arising from the company's tax treatment of a transaction or investment that is subject to future challenge by the IRS and / or state or foreign tax authorities. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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