Transactional Risk
Coverage Highlights

    CAPACITY
  • $25,000,000 for Reps & Tax
  • $15,000,000 for Specific Litigation Insurance
  • Can serve as primary layer and will help build program
  • Can serve as lead underwriter on Quota-Share program or layered program
    MINIMUM RETENTION
    Reps: Generally, lowest of 3% of purchase price, 5% of gross assets or 5% of annual revenues.

    Tax & Specific Litigation: If "loss cap" coverage desired, retention is most probable settlement value plus anticipated costs. If total risk transfer (claim buyout) sought, retention may be reduced to zero when appropriate.
    UTILITY
    Transactional Risk Insurance serves three functions for the insured:
    1. Risk Transfer; i.e., the promise to be indemnified for loss;
    2. Strategic Use; i.e., an enhanced bargaining position or facility to close an acquisition; and
    3. Added Value; i.e., a strengthened balance sheet and/or more marketable assets.

    The following chart depicts how each of the products within Transactional Risk Insurance may provide these utilities.
  R&W Insurance Tax Insurance Specific Litigation Insurance
Risk Transfer Due diligence gaps filled by coverage that indemnifies a seller or provides first party coverage to a buyer. E.g., financial statement inaccuracies, tax liabilities associated with prior acquisitions, infringement claims by competitors. Sleep insurance for professionals. Assures that expected tax consequences of a transaction will be realized. Assures the result of a pending or potential litigation.
Strategic Use & Service Existence of coverage allows buyer to reduce indemnity ceiling and/or escrow that enhances its bid and/or reduces protracted negotiations and/or allows for a reduced purchase price. Seller able to distribute proceeds, thus enhancing ROI, with immunity. Enhanced due diligence by scrutiny and support of underwriters. Existence of coverage avoids need for the otherwise risky, expensive and protracted process of seeking a private letter ruling. May also avoid need or reduce cost of obtaining an opinion of tax counsel. The mere offer of a structure of insurance allows parties to reduce the potential disparity in their analysis of the exposure, thus facilitating the ability to reach an accord via a reduced escrow, etc.
Added Value For buyer-based coverage, the assets, in general, and intellectual property, in particular, have enhanced marketablility because (1) the questions of ownership and infringement are now insured by coverage that can be assigned to a subsequent buyer; and (2) the risk of hidden or underreported liabilities associated with the acquired company as of the closing date are eliminated. Both factors also tend to speed the due diligence otherwise required in a subsequent sale of the acquired company, its assets or the acquirer itself. Value of taxpayer enhanced by the guarantee of the expected tax consequences otherwise in question. Value of the acquired company enhanced by the guarantee of the outcome of the litigation. E.g., if the litigant is a plaintiff, the guarantee of a minimal recovery may be used as collateral for financing and/or as an asset base for an equitable infusion. If the litigant is a defendant, the cap on any exposure serves to remove the exposure uncertainties that could otherwise jeopardize any subsequent sale or capital infusion.
    COMPETITIVE ADVANTAGES
  1. All policies are assignable. As noted above, this feature enhances the marketablility of the insured and/or its acquired assets or companies while also providing support for the insured's balance sheet.
  2. R&W Insurance policies expressly insure "bring-down" certificates; define "Net Provable Damages"; are tailored to appropriately define "Actual Knowledge" with fairness toward the insured; have only limited subrogation rights and are generally negotiated to address the true needs of the insured.
  3. In-house underwriting capabilities.
  4. Knowledgeable and fair claim handling with underwriter participation.
  5. Committed to transactional risk insurance.
    SUBMISSION REQUIREMENTS
    Reps:
  • identity of potential insured and decision maker
  • Acquisition Agreement including schedules (near final draft or signed)
  • Last 3 years' financial statements of company being acquired
  • Statement of Proposed Insurance Program (e.g. buyer-based, $25 million primary to lead $100 million program)
  • If Available:
    • reason why seller decided to sell business
    • summary of steps taken by seller to prepare for sale
    • reason why buyer seeks to acquire company
    • time when seller decided to sell
    • time when confidentiality letter with buyer signed
    • time when definitive agreement closing expected
    • how subject of insurance was introduced and reasons for buying insurance


    Tax:
  • identity of potential insured and decision maker
  • memoranda or opinion regarding the transaction and related tax issues and, a calculation of the possible tax loss.

    Specific Litigation Insurance:
  • identity of potential insured and decision maker
  • pleadings and, to extent available, "hot" documents, summary of "theory-of-the-case", court orders
  • damage analysis

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