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CROSS SELL OPPORTUNITIES We’ll have experts in cyber coverages, risk management, management liability, worker’s comp and virtually every specialty line both from the Risk Takers and U.S. specialty producers.
BASELINE PERSPECTIVES ON BREXIT Let’s explore a chronologically summary of the “Brexit” circumstances in order to establish a collective understanding of these historical events and create baseline perspectives for future business planning.
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BREXIT: UK ACCESS TO EU’S SINGLE MARKET Maintaining access to the single market would ease many of the major concerns UK businesses, Lloyds included, have about withdrawing from the EU.
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LLOYD’S AFTER BREXIT “The Challenge for Lloyd’s, and the industry as a whole, is to ensure our platform remains attractive and to demonstrate that we are the best place to provide businesses with the risk transfer products they need.”
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Creating a crosssell opportunity with a trusted peer is initiated and later facilitated by the face-to-face contact which is the hallmark of the CHART Exchange.”
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CHART OBJECTIVE #4 Provide Networking Events and Opportunities for new connections between Risk Taker representatives & insurance agents.
YORK RISK SERVICES GROUP HONORED TO BE PREFERRED PARTNER OF CHART EXCHANGE We will actively participate in all events to help grow the EXCHANGE for the benefit of its members.
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AGENCIES: THE CHART EXCHANGE GIVES YOU THE TOOLS The Art of War is an ancient Chinese treatise written over 2,000 years ago by Sun Tzu. It is widely thought of as a definitive work on military strategy and tactics.
CHART Exchange 35
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SET BACK FOR SELF-DRIVING CARS? A 2015 Tesla Model S failed to detect the white side of a truck trailer resulting in a collision that killed the Tesla driver. The accident is the first fatality in over 130,000,000 miles driven on autopilot by Tesla.
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HANOVER ESTIMATES IMPACT OF GLOBAL CATASTROPHE The most notable catastrophe and large loss events impacting Chaucer’s results in the quarter include the Alberta wildfires and the Ecuador and Japan earthquakes...
July-August 2016 VOLUME 1 - ISSUE 5
CHART EARLY ADOPTERS BILL OF RIGHTS
Membership Services
RESOLVED by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors assembled, that the following Articles be proposed as amendments to the Declaration of Interdependence.
Publisher:
CHART Exchange Glenn W. Clark, CPCU Matt Basile
Advertising:
Tyler Cichewicz
Managing Editor: Tyler Cichewicz
Contributing Editor: Frank Huver
Subscriptions: Tyler Cichewicz
Image Credit: Creative Commons
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THE MERGER & ACQUISITION PROCESS OF ANY INSURANCE BUSINESS Christopher Huges of Merger & Acquisition Services delivers the third in a series of comprehensive guides to the complex process of insurance business mergers & acquisitions.
Prefer To Read The CHART Exchange In PDF Format? Download PDF Version
Layout, Design & Circulation: Ron Manera AdMax Corp., Inc.
CHART Exchange info@chart-exchange.com 3001 Philadelphia Pike Claymont, Delaware 19703 www.chart-exchange.com 302-765-6001 Last Issue:
HERE
Cover Image Credit: Creative Commons
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OUR TEAM IS THERE FROM THE START TO THE FINISH NSM Insurance Group Comprehensive Insurance Coverage for: Social Services I Addiction Treatment I Professional Liability Staffing Firms I Workers' Compensation I Collectible Vehicles Coastal Condo Associations I Breweries and Wineries Sports and Wellness I Specialty Aviation
888-235-3525 www.nsminc.com
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NEVER MISS AN ISSUE OF CHART
EXCHANGE SUBSCRIBE NOW
SUBSCRIBE TO CONTINUE TO RECEIVE THE CHART EXCHANGE
Message From The Earliest Adopter
CROSS SELL OPPORTUNITIES
A
CHART Will Facilitate Cross-Sell Opportunities With Trusted Peers & Facilitated By Face-To Face Contact
s a program specialist our • expertise is in the area of management liability: Employment Practices (EPLI), Errors and Omissions (E&O), and D&O for non-profits. Management liability has changed significantly over the past 30 years. • In the late 1980s Employment Practices was considered uninsurable because the three major “triggers” of discrimination, harassment, and wrongful • termination are intentional acts vs. the fortuitous loss triggers of other lines. The EPLI form was designed to give protection to firms that took proactive measures to avoid and/or mitigate losses through a variety of risk management techniques. We’re all aware of the growing number of categories of new • liability exposures such as HIPAA violations, breach of data, identity protection, and cyber. The CHART Exchange offers a unique forum for specialty agencies to help each other grow. Some examples we have seen over the year include:
6 March 2016
•
Embedding coverage like EPLI, Machinery Breakdown, Identity Theft, Tenant Discrimination, and Cyber on an entire book of business to both improve the base form and spread risk sufficiently to enable the addon coverage to be affordable. Management liability specialists partnering with general liability and property specialists to offer a complete package to their clients. New products being distributed via the networks of a sponsoring program manager. Those are often done via a “branding” strategy so that the specialist can take advantage of their own name recognition while still operating under the authorities granted by the possessor of the new product. Workers compensation specialists bringing their capabilities to the program space through the creation of comp solutions for unique program classes. Benefits captives bringing creative solutions for P&C programs specialists to offer their insureds.
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Glenn W. Clark, CPCU Publisher & Earliest Adopter
Take some time to read through the “CHART Exchange.” We’d love to get your feedback and have you join us as an Early Adopter.”
www.chart-exchange.com
CHART Exchange
We’ll have experts in cyber coverages (see our Keynote Speaker from Ridge Global!), risk management, management liability, worker’s compensation, and virtually every specialty line both from the Risk Takers and U.S. specialty producers.”
www.chart-exchange.com
Our team has a ton of expertise facilitating events that create networking and cross-sell. We utilize agency questionnaires to ascertain attendee expertise, objectives for the meeting, programs they’d like to advance, etc.
and the “Agency Success Stories” theme of our meeting, we create an atmosphere of Ex’-change: “to give up something of value in order to obtain something of greater value”. Each of our attendees subscribes to the spirit of Exchange before committing to attend.
We’ll have experts in cyber coverages (see our Keynote Speaker from Ridge Global!), Risk Management, management liability, worker’s compensation, and virtually every specialty line both from the Risk Takers and U.S. specialty producers.
Creating a cross-sell opportunity with a trusted peer is initiated and later facilitated by the face-to-face contact which is the hallmark of the CHART Exchange.
Through our workshops, receptions, one-on-one sessions,
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Glenn W. Clark , CPCU
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NEWS-ANALYSIS
BASELINE PERSPECTIVES ON “BREXIT” FOR THE MONTHS AND YEARS AHEAD The London Insurance Market Industry Change, Business Process and Technology Advisory
A
s an organization committed to helping the London, U.K. insurance market and U.S.-based insurance agencies interact for the purpose of identifying and pursuing new business opportunities, the outcome of the 23 June 2016 U.K. Referendum on European Union (E.U.) membership (“Brexit”) is likely prompting many appropriate questions relevant to all of us. The international media is focused on the U.K. financial services sector right now and since
the Cover Holder and Risk Taker’s Exchange (CHART-Exchange) core mission is to increase U.S./London insurance related new business, we are closely following the “Brexit” implications.
E.U. is presently an economic and political union between 28 European countries that was established after World War II in 1958 with 6 original nations for the purpose of fostering economic cooperation. The idea Wilson Elser Consulting is a is that countries trading with vendor partner member of the each other become economically CHART-Exchange organization. interdependent and therefore In this article, let’s explore a more likely to avoid conflict. The chronologically summary of U.K. joined the E.U. in 1973 (and the “Brexit” circumstances in has remained a member for 43 order to establish a collective years and counting). understanding of these historical events and create baseline With exceptions, a guiding perspectives for future business principle of the E.U. is the creation planning. First, some background of a single market and general information for the benefit of any movement of people, goods, interested reader. services, and money around the E.U. as if it were a single country. As we may already know, the The E.U. is guided by the rule of law
J
esse R. Viani (an American citizen) is a practicing consultant and the Director of Insurance Business Services at Wilson Elser Consulting, a consultancy established in both New York, NY and London UK which offers advisory services, professional services, and analytics to clients all over the world. Prior to assuming this role, Jesse managed client relationships and oversaw complex international insurance software and managed services implementations as Global Account Executive at one of the world’s largest information, software, and service companies. Previously, Jesse was a manager at the Am Law 200 law firm Wilson Elser Moskowitz Edelman & Dicker LLP where he led the firm’s e-Business department, overseeing more than 150 successful compliance program and e-billing process implementations. Before joining Wilson Elser, Jesse was Director of Operations and Systems for American International Group (AIG), working in Claims Litigation Management (now known as the AIG Legal Operations Center), where he managed the carrier’s relationships with various enterprise software companies, legal bill review providers and other non-legal services vendors. Jesse graduated magna cum laude from the Pennsylvania College of Technology with a bachelor of science degree and later studied as a juris doctor candidate at the Seton Hall University School of Law.
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NEWS-ANALYSIS
THE AFTERMATH with everything based on treaties, voluntarily and democratically agreed by its members. The Lisbon Treaty, which went into effect among members in 2009, communicates in Article 50, the capability for a voluntary exit by a member nation at any time. (See http://europa.eu/about-eu/ basic-information/about/index_ en.htm). Leaping forward to modern day, back in February of this year, U.K. Prime Minister David Cameron announced the conclusion of negotiations with the E.U. on new terms for the U.K.’s future membership. These new terms were negotiated in order to address recurrent issues raised by British citizens and various political groups about the U.K.’s www.chart-exchange.com
membership in the E.U.
their perception that remaining in the E.U. would be the best overall As a part of internal political option for business. agreements, Mr. Cameron announced, at the same time, that After votes were tallied and the people of Britain would advise while the “Brexit” result was the government by referendum being communicated on Friday vote on whether to leave the E.U. June 24th, U.K. Prime Minister (“Brexit”) or remain a member (and David Cameron simultaneously take advantage of the new terms). announced that as a result of the After four months of campaigning referendum outcome, he intends by politicians and public leaders to resign as Prime Minister and on both sides of the argument, he would not personally trigger the British voters (through a Article 50 of the Lisbon Treaty 51.9% majority) preferred the (a member country’s option to option of leaving the E.U. (See trigger their own E.U. exit, as https://www.gov.uk/government/ mentioned above). topical-events/eu-referendum) Official triggering and the During the campaign period, resultant +/- two year process of many U.K. companies (including Lloyd’s and London Market See BREXIT Aftermath Pg 11 insurers) publicly communicated TABLE OF CONTENTS
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NEWS-ANALYSIS Continued From Page 9
BREXIT AFTERMATH
CHART-Exchange, it is important to clarify and reinforce that the U.S. and the U.K. continue to operate under U.S. / E.U. trade agreements, while separate and independent negotiations take shape.
updating, and executing contingency arrangements,” and 3) “remaining positive about our future.”
We assembled many of these communications and other relevant articles on our website: exit negotiations are now left, in As we have seen from the HERE. the Prime Minister’s words, for a international news media, the successor to formally lead and circumstances mentioned above As all of us continue to monitor move forward. Statements by Mr. now create the situation in the months and Cameron suggest During the u n c e r t a i n t y years ahead, hopefully these that a successor campaign and volatility in baseline perspectives in the could be in place stock markets, early days of “Brexit” will help to around October, period, many foreign exchange inform our thinking. Personally, but continuously U.K. companies markets, and as an experienced leader within emerging political and supporter of the insurance (including Lloyd’s other additional circumstances may and London Market headlines seem industry over the past dozen years, dictate otherwise. I am not surprised at the calmness insurers) publicly to emerge on a As a result of Article of our reactions, the sophistication regular basis. The of contingency planning efforts communicated their 50 having not yet British majority already underway, and the perception that been triggered, opinion was a collective sense of optimism that it is important to remaining in the E.U. remember that no would be the best surprise to the is being expressed. world’s financial official change has overall option for e c o s y s t e m , The insurance industry is yet been effectuated business.” as public and inherently disciplined at global as a result of the p r i v a t e - s e c t o r risk management and I believe referendum. polling suggested a close vote but it will manage this change opposite outcome in the final days accordingly. Moreover, S&P Global The U.K. remains in the E.U. at the Ratings is quoted in numerous leading up to the referendum. present time and, in fact, when an media outlets saying: “We see the exit is triggered the underlying insurance sector as less exposed However, follow-up rule-of-law treaty allows for 2 to the leave vote than the rest communications to date from the years of continued membership of the financial sector. While London Insurance Market itself between the exiting country and representing about one-third of (post “Brexit”) seem to consistently the UK's very substantial financial the E.U. while departure terms acknowledge that while the services net export surplus, the and new trade agreements are outcome was not the preferred insurance sector is far more reliant separately negotiated (more time overall option for business, on trade with non-EU countries is allowed if unanimously agreed they will continue 1) “operating especially the US.” If that’s true, by the remaining E.U. members). business as usual for the next From the perspective of the See BREXIT Aftermath Pg 35 couple years,” 2) “planning, www.chart-exchange.com
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News
BREXIT: BIG ISSUE TO SORT OUT IS UK ACCESS TO EU’S SINGLE MARKET
T
he UK’s vote to leave the European Union there has brought speculation as to what leaving the EU will actually look like. One immediate effect of Brexit took place on July 13, 2016 when Theresa May assumed David Cameron’s position as Prime Minister. Cameron stepped down from his position as Prime Minister when he decided he could not carry out the action to leave the EU. Cameron was a supporter of the vote to remain in the EU.
May also promoted Boris Johnson, a campaigner for the vote to leave, as foreign minister.
Wolfgang Schaeuble, said it is ‘very reasonable’ that the UK wants access to the EU’s single market. Maintaining access to the single Boris will be on a team that plans market would ease many of the the stipulations of the UK’s break major concerns UK businesses, with the EU. May’s action to name Lloyds included, have about Boris as Foreign Minister seems withdrawing from the EU. appropriate as Boris has repeatedly said that leaving the EU will Schaeuble went on to say, “But I ultimately be better for the country. think it is also reasonable position of all European institutions …that One question the UK’s business we will start the discussions on how sector is anxious to have answered we solve these problems raised by is what is to come of the trading the British decision.”
“I will do everything I can as Prime Minister to steady the ship over the coming weeks and months, but I don’t think it would be right for me to try to be the captain that steers our country to its next destination,” Cameron said. Image Credit: Creative Commons
May stated that no official action will take place regarding the UK’s withdraw from the EU until 2017. This is to allow adequate time for negotiations and assure that the agreement set in place benefits the UK and the EU as much as possible. 12
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rights to the EU. The UK will try to retain their access to the EU’s single market, an issue that many UK businesses are actively working to anticipate and compensate for. Germany’s
finance
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minister,
One of the primary motives for staying in the EU was access to EU’s 28 country market. With the UK’s decision to leave, a primary producer to the EU has left. Understandably upsetting the EU’s countries that now have more pressure to produce; Germany is one of these countries.
May and Boris along with other UK negotiators will likely be met with some opposition, but it will be in the best interest of the UK and the EU to assume a gradual and controlled break. www.chart-exchange.com
News
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All together in an accessible anywhere, easy to use platform. “We have one source for our rating, quoting, pulling data for proposals and updating any information once coverage is bound and the policy is issued... ...NetRate solved our workflow nightmare.”
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“Not only do they understand insurance terminology, but they also understand the flow of business.”
Jeremiah O’Donovan President, O’Donovan & Associates
For More Information, Contact NetRate Systems at 517.347.4900 www.chart-exchange.com
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GETTING CHART ExchangeFRUSTRATED TRYING TO LAUNCH A NEW INSURANCE IDEA?
OR COME TO THE CHART EXCHANGE AND MAKE IT HAPPEN Partner with Lloyd’s of London — the oldest, most recognized insurance brand in the world today. The CHART Exchange can show you how!
Join Us for The Second Annual CHART Meeting in Baltimore, MD Make plans to attend the Second Annual Coverholders and Risk Takers (CHART) Exchange meeting on October 3-5, 2016 in Baltimore MD. Our entire event is dedicated to growing the U.S./London marketplace through the identification and pursuit of new business opportunities. • Personally interact with Risk Taker (Syndicate) and existing Coverholder representatives with decision-making authorities • Obtain market finder assistance for new program or product ideas. We even make your Risk Taker appointments for you! • Fast track the launch of a new business plan through our exclusive incubator program • Meet Vendor Partners who help you to create a competitive advantage • Enter CHART’s version of the Shark Tank competition to win $10,000 in funding for your idea! Visit our website — www.chart-exchange.com for a full list of benefits and instructions on how to register for this exclusive event. Have questions? Send your inquiries to info@chart-exchange for immediate response.
www.chart-exchange.com The CHART Exchange 3001 Philadelphia Pike Claymont, DE 19703 Phone (855) 716-3660 Fax: (302) 334-0325
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News
LLOYD’S AFTER BREXIT The Challenge for Lloyd’s, and the industry as a whole, is to ensure our platform remains attractive and to demonstrate that we are the best place to provide businesses with the risk transfer products they need.”
Lloyd’s included, as Sean McGovern, Lloyd’s Chief Risk Officer, conceded that the UK’s relationship with the EU is ‘not perfect.’
Beale wrote in a statement that, “The Challenge for Lloyd’s, and the industry as a whole, is to ensure our platform remains attractive and to demonstrate that we are the best McGovern outlined some of the place to provide businesses with EU’s benefits to the UK and Lloyd’s the risk transfer products they specifically in February 2016. need.”
McGovern cited access to a single market as the driving benefit that outweighed virtually all other reasons to leave. Essentially, Lloyd’s is permitted to trade under a passporting system while the UK remains in the EU; the passporting system allows Lloyds and other By Tyler Cichewicz UK businesses to service global clients by establishing branches hough Lloyd’s of London’s throughout Europe and utilizing campaign to remain in the standards. European Union fell to the majority vote to leave the EU, the Other benefits of the EU for Lloyds insurance giant stands strong in were investment and trade, which the midst of economic uncertainty. both stem from access to a single market and the passporting system UK businesses, like Lloyd’s, and in place under the EU. other international entities urged UK voters in the weeks preceding Leaving the EU takes away access the referendum to consider the to a single market and pushes the economic uncertainty that would UK outside that market, and hence, come from leaving the EU. However, has caused economic uncertainty. those reasons were not enough to However, the terms of departure convince UK voters to stay in the have not been set. EU.
T
Beale also adds that she believes London can expect to maintain its position as the global heart of specialist insurance and reinsurance. Beale addresses the loss of the single market that the EU provided by saying that it will make staying competitive in a changing market more difficult, but Lloyd’s will adjust. Lloyd’s will do all it can to promote the best interest of the UK economy, which Beale believes is also the best interest for Lloyd’s. Until Article 50, a statute that officially informs the EU of the UK’s leave, all businesses continue to operate under EU regulations. With over 300 years of adapting to the changing conditions of the insurance industry, Lloyds is poised to once again adjust in the wake of BREXIT.
Lloyd’s CEO, Inga Beale, has Like any partnership or union, the previously called a vote to leave the All Lloyd’s of London policies and UK’s partnership to the EU had its EU, one of the biggest risks to the standards will remain in place shortcomings. Even those that global economy. despite any changes between the campaigned for a vote to remain, UK and the EU until 2017. www.chart-exchange.com
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Chart Objective #4
CHART OBJECTIVE:
...our team facilitated 152 preset appointments between risk taker representatives and insurance agents. The personal interaction between these two groups helped surface over two dozen viable new business opportunities.”
Provide Networking Events and Opportunities for New Connections
W
e provided a practical demonstration as to how much of a“game changer” CHART could be by hosting our inaugural event in Philadelphia last October. 330 Syndicate, insurance agency, and vendor representatives participated at the meeting. The three-day session included market-specific workshops, panel discussions, and numerous networking activities. More importantly, our team facilitated 152 pre-set appointments between risk taker representatives and insurance agents. The personal interaction between these two groups helped surface over two dozen viable new business opportunities. The
vast majority of these potential programs would never have been brought to the London marketplace without CHART. The unqualified success of last year’s meeting provided an affirmation needed to take the next step. In 2016, CHART became a permanent, non-profit organization. This past May, we took our “show on the road” and delivered our message directly to the Risk Takers by putting on the CHART Goes To London (CGL) event. A contingent of 62 Agency and Vendor Partner members met with 92 individuals representing 40 different Syndicates. The twoday session was unprecedented in scope. The Second CHART Annual Event is scheduled to take place on October 3-5, 2016 at the Marriott Baltimore Waterfront Hotel. Participants can expect the following: 1. An audience consisting of at least 400 representatives from domestic insurance agencies, London Syndicates, and Vendor Partners. 2. One-on-one meetings between Syndicates and
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Chart Objective #4
CHART Objective #4: Provide Networking Events and Opportunities For New Connections
3.
Image Credit: Creative Commons
4.
5.
6.
producers interested in discussing new product/ program ideas. These sessions will be scheduled through our Market Finder Facility; CHART’s London Broker Partners will coordinate the effort by matching the producer submissions with Syndicates possessing the most compatible risk appetites. 40 Workshops and Panels with a central theme of agency success stories. Keynote Speaker – Tom Ridge. First Secretary of Homeland Security and two-time Pennsylvania Governor. CHART’s version of the Shark Tank/Dragon’s Den. We’ve instituted changes to the format to make it more entertaining and interactive than ever. Bring your new program/product ideas or success stories. $10,000 in cash awards will be given out. Mentoring opportunities for agencies unfamiliar with the nuances of the London marketplace.
www.chart-exchange.com
7. The ability to interact with Vendor Partners dedicated to supporting this unique market niche. Experts in such disciplines as Actuarial, Claims Administration, Legal/Compliance, Marketing, M&A Services, and Systems will be in attendance. 8. Opportunity to be among the first to learn about new products, capabilities, and changes in the regulatory environment. 9. Networking with like-minded individuals interested in pursuing new business opportunities. 10. The chance to have a little fun.
Our organization’s overriding principle can be found in the very definition of the word Exchange: to give something of value in order to obtain something of greater value. Invest three days of your valuable time with us this October. Your return will be off the CHART!
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THE EARLY ADOPTERS
BILL OF RIGHTS PREAMBLE The CHART Exchange begun and held at the City of Philadelphia, between Monday the twelfth and Wednesday the fourteenth of October, two thousand and fifteen. RESOLVED by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors assembled, that the following Articles be proposed as amendments to the Declaration of Interdependence. ARTICLES in addition to, and Amendment of the Declaration of Interdependence, proposed by the Early Adopters and ratified by the Coverholders, Prospective Coverholders, Risk Takers, and Vendors attending the CHART Exchange event. FIRST AMENDMENT (Freedom of commerce and peaceable assembly). The CHART Exchange will foster growth in the U.S./London market by providing a forum through which Risk Takers and Coverholders can interact with domestic insurance agencies in the pursuit of new business opportunities. The event shall also provide a series of workshops moderated by CHART’s Risk Taker and Vendor partners. All attendees are expected to peaceably assemble at these sessions to expand their skillset and show support for the presenters. Participants shall be respectful of the efforts put forth by the moderators by not setting appointments during the times allotted for workshops. Ample time has been provided before and after scheduled events for holding individual meetings. CHART attendees are expected to follow the precepts of the “Golden Rule”: do unto others as you would have them do unto you. Individuals must be supportive and respectful of other participant’s efforts before presuming the same treatment from them. SECOND AMENDMENT (Right of attendees to bear business cards). Participants will be protected against spam and other forms of solicitation through the judicious and limited distribution of attendee lists. Business can best be conducted across long distances by first establishing the partnership through personal interaction. Participants shall network with others in attendance as a means of identifying new opportunities. THIRD AMENDMENT (Protection from enduring non-business activities). The CHART Exchange shall not schedule golf outings, formal dinners, or other social events, as these serve to distract attendees from the core purpose of getting business done. All participants are given the freedom to make their own plans after meeting hours. FOURTH AMENDMENT (Protection from unreasonable constraints on attendee time). The CHART Exchange shall be respectful of all attendees by making optimal use of the time they have allotted to participate in the event. Meetings shall start promptly at 8:00 AM. The agenda shall provide content designed to facilitate growth within the U.S./London market.
Im
FIFTH AMENDMENT (Due process and freedom from self-aggrandizing participants). The CHART Exchange shall recognize that all attendees are experts within their particular field of endeavor: risk evaluators/underwriters, product distributors, service providers, etc. As such, the meeting will be deemed as an assembly of peers. All participants are expected to check their egos at the door as part of the event registration process. Business casual shall be the dress of the day. SIXTH AMENDMENT (Judgment of new ideas by a trial of peers). All attendees shall have the right to submit their new business/marketing ideas for consideration within the Shark Tank/Dragon’s Den competition. Submissions shall be evaluated based on the innovative nature of the idea, viability of the product, and premium potential. Style points will also be awarded for the originality of the presentation itself. The winner shall be determined jointly by a panel of experts and the other attendees. The grand prize: $10,000 (£6,400). The Shark Tank/Dragon’s Den competition is sponsored by Iris Insurance Brokers. SEVENTH AMENDMENT (Civil treatment for all attendees). All participants shall have the right to expect civil treatment from all other event attendees. Moderators shall be shown respect by not having to compete with individually scheduled appointments during the times allotted for workshops. All attendees shall be granted the freedom of not having to be recipients of spam or other solicitations due to limited distribution of participant lists. Each Early Adopter is considered a full partner. EIGHTH AMENDMENT (Freedom from cruel and unusual keynote speakers). The CHART Exchange shall not retain the services of celebrity speakers to deliver speeches unrelated to the growth of the U.S./London market. Tuesday’s keynote address shall be presented by Jeff Tobe, a nationally sought after for his expertise in improving corporate profits by changing the customer experience and retaining great talent. Wednesday’s opening remarks shall be provided by Mark Cloutier, CEO of BRIT Insurance Holdings. Mr. Cloutier has extensive experience within the various aspects of the insurance transaction: as a risk-taker, product distributor, and as a vendor supporting the industry.
NINTH AMENDMENT (Enumeration of rights shall not be construed as anything critical of the great forces that build our profession). CHART recognizes the valuable role other association groups (AAMGA, NAPSLO, PLUS, TMPAA, IIABA, Trusted Choice, etc.) play within the U.S./London market. CHART shall honor the contributions these fine organizations already make and facilitate dialogue amongst risk takers, established Coverholders, U.S.based insurance agencies, and vendor partners as a means of surfacing new business opportunities. Further, the CHART Exchange shall elevate the role London Brokers play in mage credit: Lloyd’s of London the insurance transaction. Once an agreement on a new concept discussed at the meeting has been reached, risk takers and/or insurance agencies shall be encouraged to select the broker of their choice in order to transform it into a formal agreement. TENTH AMENDMENT (Powers of Risk Takers, Coverholders, Potential Coverholders, and Vendor Partners). Except for the Amendments articulated in the CHART Exchange Bill of Rights, attendees are free to pursue new business opportunities amongst themselves. Carpe Diem – Seize the Day!
Spotlight
Y
YORK RISK SERVICES GROUP: HONORED TO BE A PREFERRED STRATEGIC PARTNER OF THE CHART EXCHANGE.
ork Risk Services Group, Inc. is honored to be a Preferred Strategic Partner of the CHART Exchange. We will actively participate in all events to help grow the EXCHANGE for the benefit of its members and look forward to meeting all members & prospective members.
Through a significant investment, York has developed systems and reports specifically designed to be responsive to changing London market reforms and regulations. Powerful management information (MI) and trend analysis reports provide customers with the information needed to make sound business decisions and distinguish York Risk Services Group, Inc. is a York as a leader in the binding premier provider of TPA Services, authority business. Specialized Loss Adjusting, Customize Claims Solutions, and York’s Risk Control Services for the Lloyds outstanding of London and the London company customer service market. BINDING AUTHORITY SPECIALIST TPA SERVICES Our dedicated TPA operations is configured to accommodate the specific needs of each contract; from a designated account manager to an experienced claims handling team, we understand what our London partners need when it comes to the ever changing world of surplus lines of insurance. Because of this focus, our adjusters develop expertise in each binder, forming strong relationships with all partners; the carrier/syndicate, Coverholder, reinsurer, broker and/or retail agent. 20
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starts with an Account Manager who serves as your single point of contact for all your needs.”
IT and Accounting team that can respond to changes in market requirements quickly and effectively, York is a leader in binding authority business. 24/7 ONLINE ACCESS TO YOUR CLAIM York’s claims system is accessible via the internet so our clients can have access to the bordereau, loss runs, MI reports and the individual claim itself among many other reports that can be configured to fit our clients’ needs. RESPONSIVE CUSTOMER SERVICE
York’s outstanding customer service starts with an Account Manager who serves as your single point of contact for all your needs. Frequent, clear and concise communication means you have no surprises when it comes to SPECIFIC EXPERTISE reserves and outcomes. In addition to our strategically located offices York’s binder claims expertise along placed throughout the U.S., we also with our extensive network of home a London office which enables field and specialized loss adjusters immediate resolution to queries throughout the US gives us an edge from our London based clients. with regards to the speed that we can respond and the clarity of our reporting and decision making. Backed up by an industry leading See York Risk Services Pg 24 TABLE OF CONTENTS
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Analysis
York Risk Services Group, Inc. is honored to be a Preferred Vendor Partner of the CHART Exchange. We are a premier provider of TPA Services, Specialized Loss Adjusting, Customized Claim Solutions, & Risk Control Services for Lloyd’s of London & the London company market. We offer:
Dedicated Binding Authority Adjusting Team Dedicated E&S/Specialty Lines Open Market Adjusters Back office team for banking, bordereau production, MI reporting Customized Physical Risk Assessments (Risk Control) Virtual Risk Evaluation Services To learn more, contact Aubrey Fountain, at 850.650.2380 or Aubrey.Fountain@yorkrsg.com.
www. YORKRSG .co m
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News
SET BACK FOR SELF-DRIVING CARS? By Tyler Cichewicz
been difficult to assess for risk and A 2015 Tesla Model S failed to detect have been met with distrust from the white side of a truck trailer some consumers. resulting in a collision that killed the Tesla driver. The accident is the first Likewise, any accident, especially fatality in over 130,000,000 miles a fatal one, will increase consumer driven on autopilot by Tesla drivers. skepticism and prolong the millions of miles of testing automakers Tesla’s autopilot, a highly advanced like Tesla and Google will have to cruise control, has drawn praise and undergo before consumer models skepticism from consumers and with self-driving features are widely insurance professionals. Nevada available. was the first state to authorize the use of autonomous vehicles Drivers of Tesla’s Model S are as California, Florida, Michigan, supposed to keep their hands on North Dakota, Tennessee, and D.C. the wheel even while the car is in followed. The fatality, which happened in Florida, will only fuel skepticism and slow momentum of getting autonomous cars on the road in other states. Google is also developing a selfdriving car for the consumer, but experienced their own difficulties when in February their prototype failed to yield and hit a bus. Perhaps the best case for self-driving cars is that they seek to eliminate driver error on the road, which many studies claim is the main cause of roughly 90% of all car accidents. Initially, autonomous cars have 22
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autopilot. If a driver’s hands are not on the wheel, the car gradually slows down. However, this feature does not ensure that the driver is alert and will need to be corrected. Underwriting criteria for these cars will begin with an assessment of the driver, but as more automakers make their autonomous cars available to the consumer, the model of the car may have a greater importance.
However, liability may deviate from the insurance provider once autonomous cars are widespread and fall on the manufacturer. Some market analysts hypothesize that all cars will be autonomous by 2030, which could result in negative changes for Proud supporters of CHART auto insurance providers as premiums that would normally account for damage and injury drop.
Serving coverholders’ needs since the 1930s … and into the future Bespoke solutions Packaged lines Enhanced commissions Web-based platforms US domiciled marketing office Access us through 170 Lloyd’s brokers
www.atrium-uw.com
AtriumUw Atrium Underwriters Ltd
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As automakers like Tesla and Google lead the way, in that they are solely dedicated to pushing the boundaries of the automobiles, US and European manufacturers have followed with designs of their own. It seems inevitable that autonomous cars are coming and that they will affect insurers. www.chart-exchange.com
CHART Exchange THEY WROTE A SONG ABOUT THE LAST TIME THE BRITISH VISITED BALTIMORE
Our national anthem tells the story about the last time the British visited the Inner Harbor of Baltimore. Now you can take part in the fireworks by attending the Second Annual Coverholders and Risk Takers (CHART) Exchange meeting on October 3-5, 2016. The event will be held at the Baltimore Marriott Waterfront Hotel. The CHART Exchange has been established to serve as a catalyst for new business growth within the U.S./London marketplace. Insurance agents from across the country will be able to personally interact with representatives from various Lloyd’s syndicates as well as vendors who support this unique niche. The three-day event will also feature panel discussions, informative workshops, and new product presentations.
Become a member of the CHART Exchange! Are you a current Coverholder? Interested in accessing London markets? Join the CHART Exchange! We can provide market finder assistance, mentoring support for new agencies, and exclusive access to new products and services. Visit our website for more information.
www.chart-exchange.com The CHART Exchange 3001 Philadelphia Pike Claymont, DE 19703 Phone (855) 716-3660 Fax: (302) 334-0325
Spotlight
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YORK RISK SERVICES EXCESS AND SURPLUS ADJUSTING SERVICES
Excess and Surplus (E&S) lines insurance covers risks that cannot obtain coverage in the standard market and need a specialized solution. The risk factors that drive a customer to seek coverage in the E&S/Specialty Lines market can range from age, location, unusual hazards and size of the exposure to a need for unique coverage forms tailored to the needs of the policyholder for a one-of-a-kind risk. Those same risk characteristics mean that any claim is also going to need specialized claims handling. That’s where York’s E&S Specialty Lines Claims comes in. UNMATCHED EXPERTISE Our E&S/Specialty Lines Practice is staffed by seasoned experts from York’s renowned Specialized Loss Adjusting division. These industry veterans, who average 25 years’ experience, manage claims exclusively on behalf of the excess and surplus specialty lines market, including both foreign and domestic markets. CONNECTIONS THAT COUNT
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The Practice is well acquainted with claims personnel and underwriters operating in the foreign and domestic excess and surplus marketplace, and we have developed longstanding working relationships within North America, London market and other participating markets. Because proactive communication with all interested parties is essential to investigating and resolving E&S claims, these relationships can mean the difference between an efficient, cost-effective resolution and a lengthy, protracted and ultimately expensive claims process.
YORK RISK CONTROL SERVICES CUSTOMIZED PHYSICAL RISK ASSESSMENTS
•
ordering and reviewing surveys and reports Fast turn-around VIRTUAL RISK SERVICES
Our Virtual Risk Services division offers a cost-effective alternative to traditional on-site inspections. We combine telephonic interviews with internet research to produce verified data about operations, exposures and controls. As with our physical surveys, all virtual risk inspections are conducted by a team of highly qualified consultants with the knowledge needed to assess risks in your industry. To ensure your satisfaction as well as the best possible results, we ask you to certify the consultants for your program so you’re comfortable with their industry knowledge, program, key loss drivers and any other concerns you feel are important.
York Risk Control has a nationwide network of loss control experts who conduct physical loss control This cost-effective approach is and underwriting surveys tailored best suited to programs with lower to each client’s specific needs. exposures or consistent, historical member information. Our virtual We offer: surveys are: • Customized survey templates coupled with a seasoned • Customized to each client’s expert’s assessment specific underwriting • All lines of business guidelines • Any industry • Provide verified data about • Tailored specifically to the types operations, exposures, and of risks in your program controls • Robust, customizable • Allow underwriters to quickly management reports tailored evaluate operations and to your specific needs make effective underwriting • Easy-to-use online systems for decisions
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THE BRITISH ARE COMING! THE BRITISH ARE COMING!
‌ AND CHART INVITED THEM You can also accept our invitation to attend the Second Annual Coverholders and Risk Takers (CHART) Exchange meeting in Baltimore MD on October 3-5, 2016. The event will be held at the Baltimore Marriott Waterfront Hotel. The CHART Exchange has been established to serve as a catalyst for new business growth within the U.S./London marketplace. Insurance agents from across the country will be able to personally interact with representatives from various Lloyd’s syndicates as well as vendors who support this unique niche. The three-day event will also feature panel discussions, informative workshops, and new product presentations.
Become a member of the CHART Exchange! Are you a current Coverholder? Interested in accessing London markets? Join the CHART Exchange! We can provide market finder assistance, mentoring support for new agencies, and exclusive access to new products and services. Visit our website for more information.
www.chart-exchange.com The CHART Exchange 3001 Philadelphia Pike Claymont, DE 19703 Phone (855) 716-3660 Fax: (302) 334-0325
CHART Exchange
AGENCIES: THE CHART EXCHANGE GIVES YOU THE TOOLS & RESOURCES
T
he Art of War is an ancient Chinese treatise written over 2,000 years ago by Sun Tzu. It is widely thought of as a definitive work on military strategy and tactics. The book is required reading for officers within various branches of the U.S. Armed Forces and various governmental intelligence agencies.
insurance provider. The CHART Exchange gives domestic agencies the opportunity to interact with decision-makers from this venerable market. Our team will help align your new business program/product idea with those London Syndicates possessing the most compatible risk appetites and underwriting philosophies.
The lessons articulated in this classic text have applications within the insurance industry too – especially PRINCIPLE #2: On open for entrepreneurial-minded agencies ground, do not try to block looking to maintain their competitive edge. Let’s take a look at some of the enemy’s way. On ground the book’s guiding principles and of intersecting highways, how they relate to producers. Don’t join hands with your Glenn W. Clark Earliest Adopter be surprised if we also include some enemies. Our philosophy commentary about how CHART can help grow your has always been that other agencies are not business as well. the competition in the marketplace. Rather, it is the customer’s decision whether or not to buy the PRINCIPLE #1: According as circumstances coverage. Whatever effort our industry colleagues are favorable, one should modify one’s plans. expend to raise awareness about the consequences of Almost every successful agency has a well thoughtout business plan. This strategy includes details uninsured risk within our target audience helps us all. on preferred domestic insurance carriers, product Our organization distribution methodologies, You might feel as though you’re emphasizes peer-to-peer and administrative processes/ full-on at war some days. Other networking as a key benefit workflows. While having days, it’s more subtle, but the structure in place is important, elements of combat are there – in your to its members. As with the ability to adapt in a dynamic, pricing, (distribution) chain, negotiations, any other elite group, the ever-changing marketplace is a CHART Exchange serves as and the ever-changing lineup needed critical element to a business’ the quintessential example to draw customers over.” – Larry Kim, survival. of the “iron sharpening iron” Founder & CTO, Wordstream New opportunities bring new adage. Member agencies challenges – ones that can’t always be addressed by can learn from, forge business relationships with, and the status quo. Lloyd’s of London has an international otherwise prosper by interacting with other agencies reputation as an innovative, forward-thinking possessing similar entrepreneurial mindsets. 26
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www.chart-exchange.com
CHART Exchange PRINCIPLE #3: It is a matter of life and
Agencies are invited to take the following self- death, a road either to safety or to ruin. audit to determine if the CHART Exchange Admittedly, this particular element can help them become more successful. comes across as sounding pretty dire.
CHART EXCHANGE SELF-AUDIT QUESTIONNAIRE DESIGNED FOR INSURANCE AGENCIES Ask yourself these ten questions. Do you: 1.
Have a specialty insurance business…or a desire to build one? 2. Have a new product or program idea? 3. Want to learn more about partnering with the world’s oldest and most prestigious insurance brand…but don’t know where to start? 4. Need a new market for an existing program? 5. Wish to have a dialogue about a new business concept with a Risk Taker decision maker– held in an open, unfiltered environment?? 6. Want to be among the first to learn about new products, capabilities, and regulatory changes that impact the U.S./ London marketplace? 7. Look to share new business success stories with enterprising agencies like yourself? 8. Seek expert assistance with distribution, claims, alternative risk management, or other operational need? 9. Want to participate in an organzation that is 100% London-centric? 10. Want to have a little fun while you network with peers and pursue new business opportunities? www.chart-exchange.com
Yes No Yes No Yes No
Yes No Yes No
Yes No
Yes No Yes No
There is, however a valuable lesson to be learned here. Sun Tzu is saying those who strategize and plan are better equipped to handle adversity. Successful entrepreneurs are ready for the unexpected and can act when new opportunities present themselves. The CHART Exchange gives agencies the tools and access to resources they need. Insurance professionals unfamiliar with London can take advantage of our Incubator facility. By partnering with existing Coverholders, these agencies can expedite the launch of a new Lloyd’s-underwritten product or program into the marketplace. Additional resources will be on display at our upcoming Second Annual Event scheduled in October. The meeting will include 40 workshops and panels addressing topics and issues relevant to the U.S./London marketplace. These sessions will be moderated by recognized experts in the various disciplines. A number of vendors who provide services to the insurance industry will also be in attendance at the Fall meeting. These companies can offer agencies help in such areas as Actuarial, Marketing, Claims Administration, Legal/ Compliance, Systems, and M&A guidance.
Yes No Yes No
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Analysis
THE M&A PROCESS: DUE DILIGENCE AND CONTRACTS
The Third In A Series of Comprehensive Articles Detailing The Merger & Acquistion of Insurance Agencies, MGAs, MGUs, E&S agencies, Wholesalers and Ancillary Insurance Businesses.
T
he last two Chart articles were on the valuation of insurance distribution firms, and on the M&A Process. This is the third of the series on insurance distribution firms, and describes how Letters of Intent (LOI) are structured, the types of due diligence that are completed by the buyer, and the various contracts that are negotiated between the principals and the attorneys.
Structuring the Letter of Intent
will work out the details of promissory notes, earnout arrangements, employment agreements, and other material terms to the transaction. Generally speaking, there are four main types of consideration or compensation for the sale of the business: (1) cash and equivalents, (2) promissory notes, (3) earn-out arrangements, and (4) employment agreements.
Cash and Equivalents: Cash at closing is almost
always a material component to every sale of a business. Equivalents to cash may include assumption After the basic terms of the Letter of Intent have been of debt, marketable securities, or other consideration agreed to by the buyer and seller, the structure and that has an immediate cash value at closing. In details of the transaction will need to be determined. most instances, sellers of businesses would prefer to The buyer and seller’s accountants will be involved in maximize the amount of cash at closing, while buyers spelling out exactly how to best structure the deal to prefer to have less cash and have a future component minimize the impact of taxes. The buyer and seller that is tied to the performance of the business.
C
histopher M. Hughes serves as Managing Director of Insurance Distribution for Merger & Acquisition Services, specializing on insurance agencies, MGAs, MGUs, E&S agencies, wholesalers, and ancillary insurance businesses. Mr. Hughes comes to Merger & Acquisition Services, Inc. with over 10 years of insurance and legal experience, working on engagements with Property / Casualty and Life / Health insurance distribution businesses. He previously served as an advisor for a boutique firm in CT where his exclusive focus was on insurance distribution companies. In addition, Mr. Hughes spent 7 years as a senior product manager for Hartford Financial Services Group (“HIG”) with full P&L accountability for specialty products, and as director of HIG’s internal retained asset and structured settlement departments. Prior to The Hartford, Mr. Hughes practiced commercial litigation in Boca Raton, Florida. Mr. Hughes was honorably discharged from active duty in the United States Marine Corps (USMC) in 1992, after serving with E Company, 2nd Battalion, 8th Marines, 2nd Marine Division. While in the USMC, he served as an infantryman in the 1991 Northern Iraq operations: Provide Comfort, Encourage Hope, and Force Hope. Mr. Hughes has earned a J.D. degree from Northern Illinois University, a M.B.A. from the University of Connecticut, and a B.A. from the University of West Florida. 28
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Analysis
Promissory Notes: A promissory note is a loan by amount of cash at closing, and is not interested
in working any longer. In other instances, a large publically traded company or private equity group may be the purchaser and need the current owner and management team to stay on for a considerable period of time and will offer generous earn-out and compensation packages to achieve growth objectives. Insurance agency owners often have built up a reputable name and company, and are looking for a combination of cash at closing, a reasonable employment agreement after the sale, and realistic Earn-outs: An earn-out is a future payment that will and obtainable earn-out payments. be made by the buyer if and when certain conditions are met in the future. The structure of the earn-out During the Sale phase of the M&A process, the buyer various significantly for each deal. Some earn-outs are and seller have reached an agreement in principle on based on Compounded Annual Growth Rates (CAGR) the purchase and sale of the firm. This agreement will be of the EBITDA or of the Revenue of the firm for a 1 to formalized in a “non-binding” Letter of Intent between 5 year period post-closing, the most common being the buyer and seller. Now, each party will conduct a a three (3) year period. The earn-out may provide due diligence of the other party to ensure that all of significant up-side potential for growth, and provide the representations made to date are proven, that all for down-side protection in the event the firm shrinks. the documentation and information can be confirmed, In almost all instances, earn-outs are performance and that there are no hidden surprises not previously based, meaning that the firm must meet the agreed disclosed. This is also the period where the buyer will upon financial targets post-closing to be paid the obtain all the requisite licenses, appointments, and other legal and contractual relationships necessary to earn-out payments. complete the purchase. The below charts illustrates Employment Agreements: In almost all the steps that are involved in the final execution phase: transactions, there is a provision that the seller, and key management, will continue to work at the business for a specified period of time, generally one to five years post-closing. Because the seller is generally one of the key people of the business, the transaction can be structured to include an employment agreement that has a market rate compensation package as part of the overall transaction. the seller of a business to the buyer, generally secured by the combined businesses, and oftentimes, with a personal guarantee from the buyer. A promissory note is not conditioned on the future performance of the business. Promissory notes are often used when traditional financing is not readily available. This is also called “seller’s financing”. Promissory notes are often used on smaller transactions for buyers and sellers that have less than $2MM in revenue.
All four of the above types of consideration are negotiated while structuring the deal. In some instances, the owner is looking to retire with a large
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Analysis
THE M&A PROCESS Due Diligence
Due diligence is the process where the buyer has the opportunity to examine detailed information on the financial, operational, and corporate/ legal aspects of the business. During the due diligence period, the buyer and its advisors conduct a comprehensive investigation of all of the details of the business. The purpose of due diligence is to verify and confirm that all material facts to the business are as they were represented to the buyer. The first step in the due diligence process is to develop a due diligence information and document request from the buyer, the buyer’s attorney, CPA, and other advisors. The M&A professional will develop a due diligence timeline to gather the requested documents and information, establish a virtual 30
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“data room” if appropriate, and ensure that all milestones are being met. The due diligence request and process can be time and labor intensive, and can be emotionally exhausting to the firm’s owner if not properly prepared for the process. The information and document request will contain three broad aspects of information: (1) financial, (2) operational, and (3) corporate/legal.
and all other aspects of the firm’s current and historical financial picture. The CPA on your team will help with putting all of the documents and reports together, and will work with the buyer’s CPA or accountant in making sure that all of the requests are relevant and business related.
Corporate/Legal:
Corporate due diligence will entail gathering all aspects of the business Financial: The financial due incorporation documents, all diligence will entail gathering business and insurance licenses, carrier contracts, leases and 3rd party contracts, E&O claims or lawsuits, e m p l o y e e contracts/ independent contractors, noncompetes, prior transactions , and all other legally binding documents and contracts that are relevant to the business. Your attorney will work with the buyer’s team historical financial statements, and attorney to complete the legal tax returns, bank statements, aspect of due diligence. QuickBooks, carrier production reports, loss runs, claims runs, Operational: Operational due actuarial reports, detailed diligence includes providing verification of pro-forma information and documentation adjustments, customers and on business plans, corporate revenue verifications, key policies, employees, HR practices accounts, loss or gain of accounts, and procedures, marketing plans, contingency or bonus income, IT systems, intellectual property, TABLE OF CONTENTS
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Image Credit: Creative Commons
Continued From Page 29
Analysis assets list, and other operational document that conveys ownership aspects of the business. of the firm from the seller to the buyer. The Asset Purchase Agreement Due diligence varies greatly from supersedes all prior documents, company to company. Generally, discussions and negotiations. the due diligence phase of the The APA will specifically list all M&A process can last anywhere of the assets to be purchased from 30 to 90 days, depending on It is the complexity of the business. The most important aspect of due imperative to diligence is to have an orderly, use qualified timely process, and to complete business transaction milestones on time.
Contracts After the Letter of Intent has been signed by both parties, the buyer’s attorney will begin the drafting and negotiation of the various contracts that will be necessary for closing. Generally, the four main types of contracts to close a transaction are: (1) Asset Purchase Agreement (APA); (2) Employment or Independent Contractor Agreement; (3) NonCompete Agreement; and (4) Promissory Notes. We will briefly describe the aspects of each of these contracts below. In addition, there can be a number of licensing, appointments, producer contracts, and other legal contracts that will need to be executed or agreed to while moving toward closing, at closing, or sometimes in the postclosing integration phase of the process.
Asset Purchase Agreement: The definitive Asset Purchase Agreement (APA) is the document that will govern all aspects of the purchase. This is the primary www.chart-exchange.com
attorneys to represent you in this important transaction. Business transaction attorneys focus their entire practice around this area of the law, and generally do at least 5–10 complex deals per year, and a higher number of smaller business purchases.”
and liabilities to be assumed, or in the case of a stock purchase (Stock Purchase Agreement), the stock and other securities to be purchased. It will contain detailed schedules of inventories, accounts receivable, accounts payable, contracts, intellectual property (websites, email addresses, 800 #s, copyrights, trademarks, etc), licenses, appointments, books and records of the business, and all other material components to the business. The APA will address tax treatment, allocation of the assets to be TABLE OF CONTENTS
purchased for tax purposes, and treatment of benefit plans to the owners and employees. The representations and warranties section of the APA will spell out all of the assumptions and risks assumed by each of the parties. The APA is a comprehensive document that addresses and contractually binds the seller and buyer together. Generally, the Buyer’s Attorney will deliver the APA to the Sellers attorney with 15 days of signed LOI. The Seller and Attorney will “redline” and “negotiate” the 2nd draft of the Agreement within 10 to 15 days. Then the Seller and Attorney will create “schedules and exhibits.” Final negotiations and draft of the purchase agreement generally takes 30 to 60 days from signed LOI. Following, the closing and flow of funds date and process is executed. It is imperative to use qualified business transaction attorneys to represent you in this important transaction. Business transaction attorneys focus their entire practice around this area of the law, and generally do at least 5 – 10 complex deals per year, and a higher number of smaller business purchases. While, this type of specialist attorney may quote or charge you more than the attorney that you have used for years, it is one of the best investments that you can make. Attorneys that are not specialized in this area of the law can expose you to risks that
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Analysis
Non-Compete Agreement:
Continued From Page 31
THE M&A PROCESS
you should have to bear, unwind your transaction on non-material matters, or charge you numerous hours of “getting up to speed” time on learning the law to represent you. Your M&A professional will have a number of competent, transaction attorney specialists to refer you to.
Employment or Independent Contractor Agreements: Almost every purchase of a business
Every purchase of a business has a non-compete agreement as part of the transaction. The Non-Compete is generally for a period of time (3 to 6 years) and will cover nonsolicitation of clients or customers that were part of the overall business transaction. The important piece of the non-compete agreement is that it should be strict enough to not allow the seller to set up a competing business right after the sale, but not so strict as to cut off the seller’s livelihood. In the case of professional practices, such as insurance agencies, law firms, and doctor’s offices, non-compete agreements must be carefully worded as to not put too many restrictions on the seller; otherwise they will not be enforceable in a court of law. Additionally, some portion of the payment for the purchase price will be allocated as consideration for the non-compete. The CPAs will work out the specifics of the allocation to ensure the best tax consequence.
has an employment contract or consulting agreement with the seller to ensure a smooth transition of ownership. Often, the seller will want to continue to work for a reasonable Promissory Note salary on the aspects and/or Earnof the business they out: In the sale enjoy for a number of of a business, and years. Or, the buyer especially in the will want to have the sale of an insurance seller sign a consulting agency, the buyer agreement for a set and lender may number of hours per request that month to help with the seller either integration issues. In finance a portion most instances, the of the transaction buyer will want the through a seller to commit to a promissory note, period of time to ensure and/or also “earna smooth integration out” a portion of period post-closing. the purchase price The employment or over time. The consulting agreement promissory note is can become an integral Image Credit: Creative Commons a definite payment part of the overall transaction, depending on the goals amount, with definitive terms, such as $250,000 of the owner. The compensation package is generally amortized over a 5 year period at 7% interest. An a market based for the role and responsibilities of the role. See The M&A Process Page 34 32
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Analysis
Continued From Page 32
THE M&A PROCESS earn-out is generally subject to the business meeting future sales projections, such as $100,000 in year 1 if gross commissions are at least $2,000,000, $100,000 in year 2 if gross commissions are at least $2,100,000. The earn-out ties the future payments to the business meeting these future sales targets. In many cases, an earn-out is structured such that if the business does very well over the period, then the seller may earn more, and if the business sales fall, then the seller will earn less during each period. Collectively, these four (4) contracts are the essence of the sale of a business. The purchase price and structure of the transaction will vary greatly depending on the goals and motivations of both the buyer and seller. The risk/reward ratios will change the way each deal is structured. Riskier businesses may require higher percentages of earnouts, or lower cash payments. Low risk, collateralized businesses may not require high earn-outs or a promissory note from the seller. The exit planning team that you selected and have worked with up to this point will take over a majority of the contractual work, and will involve you in the decisions once most of the drafting, negotiations, and allocations have taken place. By having a multi34
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disciplinary team in place, each of the specific pieces of the contractual negotiations will be handled by the specialist that can best meet your objectives.
office, or in many cases, completed entirely by telephone, facsimile, electronically, and wire transfer. The week before closing will entail making all of the necessary financial adjustments to accounts receivable, Closing and Transition accounts payable, zeroing out bank accounts or transferring funds to The final stage of the M&A process appropriate bank accounts, and other is working up to and closing the sale administrative items that have been of your business. agreed to prior to Working During this phase, closing. On the day the buyer and seller off of the of closing all of the will work with their definitive contracts timeline teams to make sure and agreements prepared by the that all of the carrier between the parties M&A professional, will be executed, appointments are in place, that all of the there will be a final dated, notarized, necessary state and checklist of all the and distributed to federal licenses are items that need to all of the principals obtained, and that be completed one and their advisors. all remaining issues When properly week prior to the for both parties’ due prepared, the closing closing to ensure diligence requests can take as little as are completed and that the sale of two or three hours. resolved. the business goes Once the closing has taken place, and through on time Working off of the ownership has been and without any timeline prepared by transferred, and the surprises.“ the M&A professional, purchase price has there will be a final been transferred, the M&A process is checklist of all the items that need to complete. be completed one week prior to the closing to ensure that the sale of the Congratulations. We have made business goes through on time and it through the series of insurance without any surprises. From the time distribution firm articles, including the that the Letter of Intent is executed how to value an insurance distribution through the actual closing date can firm, the M&A process for completing be anywhere from 30 to 90 days. a transaction, and the diligence and The period varies depending on the contracts involved in the transaction. length of time necessary to close the open items such as obtain licenses. I hope that this article has been informative and useful for you. The closing itself can be held at one of the attorney’s offices, at the M&A firm’s Chris Hughes TABLE OF CONTENTS
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News
Continued From Page 11
BREXIT AFTERMATH then perhaps CHART-Exchange now has even more work and even more U.S. / London short and long-term business opportunities in the future.
HANOVER ESTIMATES IMPACT OF GLOBAL CATASTROPHE AT ITS CHAUCER SEGMENT
T
he Hanover Insurance Group, Inc. announced on Thursday, July 14, 2016 that the estimated impact of catastrophe and large loss activity, as well as About Wilson Elser the impact of foreign exchange Consulting movements, on second quarter results at its Chaucer segment. The Operating as a subsidiary company expects the segment consultancy from Wilson Elser, one to produce an estimated second of the world’s most preeminent quarter combined ratio in the insurance defense and fullrange of 103 to 105%. service law firms with nearly 800 lawyers and 30 offices throughout The most notable catastrophe the USA and 1 office in London, and large loss events impacting Wilson Elser Consulting provides Chaucer's results in the quarter unique professional experience, include the Alberta wildfires and the advisory services, and other Ecuador and Japan earthquakes, non-legal advice and business as well the Jubilee Oil Field turret insights to insurance markets, malfunction and the Brussels carriers, and any organization Airport terrorist attack losses, which involved in the application of occurred in the first quarter. The enterprise risk, governance, legal results also were affected by loss and compliance management; activity in trade credit coverages legal operations and legal spend within the marine line, related to management; claims vendor and commodity price-sensitive risks. claims litigation management; Foreign exchange movements, in and insurance operations and particular weakening of pound systems by guiding our clients sterling, also resulted in a net to champion change through negative impact on the combined process, technology, and ratio, which is contemplated in the analytics. For more info, contact above estimate. Mr. Jesse R. Viani at +1 (212) 9155298 or jesse.viani@wilsonelser. "Chaucer continues to manage its com exposures very well," said Eugene www.chart-exchange.com
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M. Bullis, chief financial officer at The Hanover. "Volatility from time to time is expected and entirely consistent with our long-term outlook for this business. Losses from these market-wide events were generally proportionate to our underwriting appetite and market-wide experience."
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LLOYD’S OF LONDON
36
JULY-AUGUST 2016
TABLE OF CONTENTS
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