New ACE White Paper Examines Mergers & Acquisitions, Risk Management Relative to Collateral Issues

Thu Apr 18, 2013 1:41pm EDT

* Reuters is not responsible for the content in this press release.

New ACE White Paper Examines Mergers & Acquisitions, Risk Management Relative to Collateral Issues

ACE USA, the U.S.-based retail operations of the ACE Group, today announced the release of a white paper exploring the insurance and risk management issues that global companies and private equity firms confront when engaging in mergers and acquisitions, and more specifically, when providing the collateral associated with the target entity’s insurance programs. Such collateral obligations typically involve both the past and ongoing financial risks stemming from the deductibles (self-insured retentions) arising under the target entity’s workers compensation, automobile liability, and general liability policies.

“M&A Risk Management: Collateral Liabilities and Solutions” was authored by Seth Gillston, Senior Vice President, ACE Global Mergers & Acquisitions Industry Practice, and includes commentary by Thomas Kim, Global Risk Manager, Kohlberg Kravis Roberts. This new white paper discusses how to address collateral responsibilities from an efficient risk transfer standpoint. According to Mr. Gillston, “With global mergers and acquisitions expected to rise significantly through 2013, companies and private equity firms with strong balance sheets, inexpensive debt, and superior working capital management practices, are expected to continue to pursue growth through mergers and acquisitions. Potential purchasers need to perform due diligence of the target entities’ ongoing liabilities, particularly for their retained self-insured risk or deductible reimbursement obligations.”

Mr. Kim noted, “Corporate risk managers understand that post-transaction financial liabilities are increasingly common and require careful consideration. And, he added, “In many of the industry sectors we look at from an acquisition standpoint—health care, manufacturing, retail, and energy, and so on – obligations to provide collateral are an issue. Insurance related collateral guarantees are one of the top five due diligence items.”

At the same time, Mr. Gillston said, “A vital consideration in M&A due diligence is to protect the acquiring entity in a cost-effective manner – shielding them from the financial impact of these liabilities, particularly adverse or unanticipated loss development.”

Advising fellow risk managers that their due diligence should take into account the full range of options to address the collateral obligations deriving from mergers and acquisitions, Mr. Kim said, “If you work closely with a specialty insurance carrier to identify those issues and manage them properly, they can become an opportunity rather than a problem.”

As part of a thorough mergers & acquisitions insurance and risk management program, acquiring companies should partner with an insurer who has significant experience in managing a target’s collateral obligations, in addition to the following key attributes:

  • An understanding of the applicable regulations
  • A specialization in this type of coverage, in order to thoroughly understand the risks involved in addressing collateral responsibilities from an efficient risk transfer standpoint
  • An ability to identify legacy liabilities in global mergers & acquisitions
  • Financial strength and an excellent reputation
  • The ability to offer a broad range of products
  • Worldwide coverage offerings, with locally admitted policies, for international companies

To access the report, please visit our website. The material presented in this report is not intended to provide legal or other expert advice. It is presented as informational only. Readers should consult legal counsel or other experts, as applicable, with any specific questions they may have.

ACE Risk Management, a division of ACE USA, offers comprehensive risk management programs and services that are uniquely designed and customized to assist companies in any industry dealing with the significant costs of financing and managing risks. To learn more about ACE Risk Management’s products and services, please visit our website. Insurance is provided by insurance companies within the ACE Group. All products may not be available in all jurisdictions. The product information above is a summary only. The insurance policy actually issued contains the terms and limits of the contract.

ACE USA is the U.S.-based retail operating division of the ACE Group, headed by ACE Limited, and is rated A+ (Superior) by A.M. Best Company and A+ (Strong) by Standard & Poor’s. ACE USA, through its underwriting companies, provides insurance products and services throughout the U.S. Additional information on ACE USA and its products and services can be found at www.acegroup.com/us. The ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 53 countries, ACE provides commercial and personal property and casualty insurance, personal accident supplemental health insurance, reinsurance, and life insurance to a diverse group of clients. ACE Limited, the parent company of the ACE Group, is listed on the New York Stock Exchange (NYSE: ACE) and is a component of the S&P 500 index. Additional information can be found at: www.acegroup.com.

ACE USA
Carla L. Ferrara, 212-827-4744
Carla.ferrara@acegroup.com