The CHART Exchange Feb-March 2017

IN THIS ISSUE 6

LOOKING BACK: HOW CHART CAME TO BE - AND WHY IT’S WORKING I think it is safe to say that the vast majority of entrepreneurs can be characterized as forwardthinking people. They thrive on achieving the next goal, winning the next big deal, or reaching the next business milestone.

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CHART INTERVIEWS CURTIS HEPTNER OF ONE STAR INSURANCE “No other insurance organization can provide access to the London markets in quite the same manner as CHART.”

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LLOYD’S ISSUES NEW £300M TIER 2 SUBORDINATED DEBT ISSUE The new bond counts as Tier 2 capital and is being used for general corporate purposes, including ensuring Lloyd’s retains an efficient capital base.

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LLOYD’S WELCOMES EU-US BILATERAL AGREEMENT ON INSURANCE AND REINSURANCE Lloyd’s has long advocated the need to abolish discriminatory reinsurance statutory collateral requirements.

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LLOYD’S REGIONAL UNDERWRITING HUB IN ASIA HOSTS UK Lloyd’s is the largest provider of off-shore reinsurance premium income in Singapore, according to figures from the Monetary Authority of Singapore.

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The key objective of the CHART Exchange is to foster growth within the U.S./London marketplace through the identification and pursuit of new business opportunities.”

INGA BEAL DESCRIBES LLOYD’S IN HISTORIC MIAMI SPEECH In a recent speech given to during a Meet the Markets meeting in Miami Lloyd’s of London CEO described Lloyd’s of London and what makes it unique.

BETWIXT, BETWEEN AND BEQUEATHING PROPER PLANNING NOW WILL HELP AVOID AN NWANTED “GIFT” LATER. Trusts & estates law inherently involves sensitive and personal matters, which makes attorneys who practice in that area uniquely susceptible to the assertion of legal malpractice claims by unhappy clients and others.

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RICHARD PRYCE OF QBE APPOINTED TO LLOYD’S FRANCHISE BOARD Lloyd’s announced today that Richard Pryce, CEO for QBE European Operations has been appointed by the Council of Lloyd’s as a nonexecutive director of the Franchise Board.

Cover Image Credit: Wikimedia Commons

CHART EXCHANGE

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IS YOUR PROGRAM LOOKING FOR WAYS TO SAVE MONEY? LOOK AT YOUR CLAIMS COSTS Industry veteran and York Programs Managing Vice President Rick Ruiz provides some simple but impactful advice: look at your claims costs.

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WHY PREMIUM FINANCING IS A GOOD FIT FOR COMMERCIAL INSURANCE COMPANIES

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BRUCE CARNEGIEBROWN CONFIRMED AS NEXT CHAIRMAN OF LLOYD’S Bruce Carnegie-Brown is to become the Chairman of Lloyd’s following a meeting of the Council of Lloyd’s where his appointment as successor to John Nelson was approved unanimously.

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LLOYD’S OF LONDON LOOKS TO LUXEMBOURG Since Prime Minister Theresa May has announced that Great Britain is not looking for a “Soft Brexit” and that the UK will be leaving the single market, Lloyd’s has begun implementing its contingency plan.

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Membership Services Matt Basile

Managing Editor: Matt Basile Contributing Editor: Frank Huver Layout, Design & Circulation: Ron Manera AdMax Corp., Inc.

HOW MUCH IS MY AGENCY WORTH? One of the first questions that most agency owners ask me when they begin to think about divesting their agency, is “how much is my agency worth?”. It is a difficult question to answer accurately without first reviewing and recasting their financial statements.

Publisher: CHART Exchange Glenn W. Clark, CPCU

Advertising: Matt Basile

The first thing we do is agree to create a profit center for your business.

Our objective isn’t to create another avenue for you to send hard-earned revenue outside of your organization.

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FEB-MAR 2017 VOLUME 2 - ISSUE 2

INGA BEAL, THE 1ST FEMALE CEO OF LLOYD’S OF LONDON IN IT’S 328-YEAR HISTORY EXPLAINS LLOYD’S AND WHAT MAKES IT UNIQUE PAGE 14

CHART Exchange

info@chart-exchange.com 3001 Philadelphia Pike Claymont, Delaware 19703 www.chart-exchange.com 302-765-6001

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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

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MESSAGE FROM THE EARLIEST ADOPTER

LOOKING BACK: HOW CHART CAME TO BE - AND WHY IT’S WORKING

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think it is safe to say that the vast majority of entrepreneurs can be characterized as forward-thinking people. They thrive on achieving the next goal, winning the next big deal, or reaching the next business milestone.

brokerage operation. Back in 1998, there was no real forum for likeminded Program Administrators to meet, network, and discuss issues that were important to us. We approached our then employer – E.W. Blanch – with a strategy for obtaining a competitive edge within Every once in a while it is a this unique market niche. Our team worthwhile exercise to look back at even came up with the futuristicthe past and reflect on how we got sounding name of BPS2k (Blanch to where we are now. As the CHART Programs Services 2000).

Exchange moves in to its third year of existence, we thought it might The plan was simple: form an be an interesting exercise to think association of program specialists back on how the concept of an as a type of best practices group organization dedicated to the U.S./ to give EWB a platform to bring in London marketplace came to be. the best carriers, vendors, speakers, workshops, to the specialist The genesis of this idea goes back to programs world. The BPS2k idea when we first launched Rockwood was never accepted at Blanch…

Programs. At the time, we were but became the blueprint for a new a start-up Managing General group now known as The Target Agency owned by a reinsurance Markets Program Administrators Association (TMPAA).

TMPAA was established in 2001. As far as new launches go, it was the “Perfect Storm”. A group dedicated to supporting the needs of an under-

6 March 2016

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Glenn W. Clark, CPCU Publisher & Earliest Adopter served niche. Member agencies that shared our vision enthusiastically supported it. Insurance carriers and vendor partners that recognized the unique business opportunity.

Target Markets eventually outgrew us; at that point we turned it over to another entity better equipped to manage it.

We once again took a look at our own experience to figure out what to do next. Rockwood’s flagship insurance product had always been Employment Practices Liability (EPLI). Yet over the past two decades we had to change our domestic insurance carrier partners five times – and not once was the move initiated by us. The causes were outside of our control: transition in underwriting philosophies, shake-ups in management, shifts in strategic direction, etc.

Now compare that experience with the ones we’ve had with London.

In 2004 Rockwood launched a start-up Insurance Agent’s E&O program. Thirteen years later we

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CHART EXCHANGE are still interacting with the same Underwriter (Nick Leighton). He has shown himself to be a steadfast partner.

Our partnerships with other London-based initiatives have yielded similar results.

other factors combine to make the marketplace very dynamic.

Lloyd’s regulations, etc. Also keep in mind that this group might not necessarily be the best source for 3. Seek expertise, stability, birthing a new idea. and partnership.

The best new programs are launched 6. Face-to-face interaction collaboratively between an agency is a proven concept. It is difficult The key objective of the CHART who understands the market and to establish a long-term business Exchange is to foster growth within an underwriter with the requisite relationship over great distances. the U.S./London marketplace knowledge in risk evaluation. Personal meetings between through the identification While the best carrier partner may agencies with new program ideas and pursuit of new business be a domestic insurer, remember and risk takers can serve to foster opportunities. To achieve this goal, that they change philosophies/ trust, resolve outstanding issues, it is necessary to raise awareness strategies often. London is built to and move concepts forward. within the domestic insurance do new deals. agent community regarding the 7.

The London market doesn’t benefits of working with have to be a mystery.

Lloyd’s. Fortunately, we The key objective of the CHART Many domestic agencies are teachers and love are unfamiliar with Exchange is to foster growth to share our positive Lloyd’s.

CHART provides within the U.S./London marketplace experiences. the forum for these through the identification and pursuit producers to become of new business opportunities. To Here are the messages acquainted with the we strive to convey to achieve this goal, it is necessary to raise world’s oldest insurance those unfamiliar with awareness within the domestic insurance brand. the London market:

agent community regarding the benefits of working with Lloyd’s.“

8. CHART was built on the lessons of program business.

Identify an 4.

Embrace the concept of under-served niche. Understand the surplus lines! As noted in item #2 target audience. Test the concepts above, the marketplace can change of a new idea like CHART to validate in a heartbeat. Writing business on relevance. a non-admitted basis allows you to nimbly adapt to the dynamic 2. Programs are both a business environment. science and moving target. There are some commonalities relating 5. Understand the role of to program business: adherence the London Broker. The Broker to underwriting disciplines, proper plays a crucial part of any Londonevaluation of risk characteristics, based transaction: serving as determination of adequate rate, the intermediary between the Glenn W. Clark , CPCU etc. With that said, the introduction Underwriter and domestic insurance CHART’S Earliest Adopter of new exposures, changes in the agency, ensuring compliance with competitive environment, and 1. Specialize for your long-term value.

The level of expertise you possess regarding a particular product line, target niche, or coverage nuance serves as a key differentiator in the marketplace.

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FEBRUARY-MARCH 2017

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CHART MEMBER INTERVIEW

CHART INTERVIEWS CURTIS HEPTNER OF ONE STAR INSURANCE SOLUTIONS No other insurance organization can provide access to the London markets in quite the same manner as CHART. Their unique Market Finder Facility provided us preset meetings with Syndicates who had risk appetites that were compatible with our proposed program.”

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he CHART Exchange Magazine recently had the opportunity to interview One Star Insurance Solution’s Managing Member Curtis Heptner. Curtis was an attendee at our inaugural 2015 meeting in Philadelphia and is currently a member of the CHART Exchange.

with the Texas Alliance of Energy Producers, an oil & gas industry association. In 2005 it was apparent that he didn’t have the time to run a retail insurance agency and grow a wholesale program management company, so he hired me for the wholesale side to run the business.

That was the beginning of One Star Insurance Solutions. This entity 1.

IN YOUR OWN WORDS, CAN YOU manages association insurance DESCRIBE HOW YOUR AGENCY WAS programs for Texas Alliance of BUILT? Energy Producers, Texas Propane Steve Burleson began in retail Gas Association and Electrical Safety agency business in 1980 becoming and Insurance Group. Click here to partner in 1987 and continues today view some informative marketing with Boley Featherston Insurance. materials.

In 1987, Steve began to work

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r. Heptner is a Managing Member at One Star Insurance Solutions. He works with Steve Burleson the President and Owner of Boley Featherston Insurance. Both men develop insurance programs for the oil & gas, propane, and electrical construction industries in Texas and the U.S.

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CHART MEMBER INTERVIEW 2. WHAT ATTRACTS YOU TO PROGRAM BUSINESS? WHAT KIND OF SPECIALIST ARE YOU?

No other insurance organization can provide access to the London markets in quite the same manner as CHART. Their unique Market Finder Facility provided us pre-set meetings with Syndicates who had risk appetites that were compatible with our proposed program.

CHART helped us at a crucial crossroads to becoming a Coverholder with Lloyd’s.

We enjoy designing products specifically for a certain industries which we then distribute by marketing through retail insurance agents. One Star Insurance Solutions is a wholesale insurance marketing company specializing in insurance products for the oil & gas, propane, and electrical construction, and general construction industries.

WHAT DO YOU CONSIDER We design, market and now do 6.

CRITICAL TO YOUR SUCCESS? ANY underwriting and issuance as a ADVICE YOU CAN BESTOW TO OTHER Lloyd’s of London Coverholder.

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AGENCIES?

There are two key factors we’d like to identify. First, there is the ability to clearly articulate Our Excess Program is currently our ideas and products to a written over BICO Insurance Syndicate in order to achieve Company primary coverage so it their buy-in. Second, we have is a little specialized. One must be been able to develop and a BITCO appointed agent to take maintain a production force advantage of this excess coverage. that is essential to product distribution. We are learning 4.

WHAT DREW YOU TO CHART to adapt to the different ways EXCHANGE? WHAT PURPOSE DOES IT to do business that really isn’t SERVE YOU? new, but is to us. CHART will We received an email invitation continue to help us expand from Glenn Clark (CHART’s and we look forward to gaining Earliest Adopter) 2 years ago and additional knowledge through we attended the 2015 program the CHART magazine and future in Philadelphia. It has been a conferences. tremendous help to us by meeting the risk takers and the process For more information on One of applying for and becoming a Star Insurance Solutions and the Coverholder. insurance products that they offer, contact Curtis Heptner 5.

IF YOU HAVE EXPERIENCE WITH at curtis@1starins.com.

Mr. OTHER INSURANCE ASSOCIATIONSHeptner can also be reached at WHAT DIFFERENTIATES CHART FROM 940-397-2771.

THEM. 3.

IF YOU HAVE A PROGRAM AND YOU’RE LOOKING FOR PRODUCERS, PLEASE DESCRIBE IT.

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9

NEWS

LLOYD’S ISSUES NEW £300M TIER 2 SUBORDINATED DEBT ISSUE

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loyd’s has strengthened its capital position follow the issuance of a new £300m 30-year Non-Call 10 subordinated bond.

Government 10-year Gilts plus 330 "Interest from investors was basis points. outstanding - underlining the strength of Lloyd’s and its brand.

The new bond counts as Tier 2 This new £300m issue reinforces capital and is being used for general our efficient capital structure corporate purposes, including that offers excellent security to The bond attracted more than ensuring Lloyd’s retains an efficient policyholders. This is reflected in £2bn of orders from investors capital base.

Lloyd’s financial strength ratings of following its announcement on 24 A+ with Standard & Poor’s, AA- with January. The final pricing was at UK John Parry, Lloyd’s CFO, said: Fitch Ratings and A with A.M.Best.”

LLOYD’S WELCOMES EU-US BILATERAL AGREEMENT ON INSURANCE AND REINSURANCE

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ollowing the agreement reached by the European Union and United States on insurance and reinsurance, Lloyd’s Chairman John Nelson said: “We welcome this agreement and believe it will be of great benefit to the international insurance and reinsurance industry and its customers. Lloyd's has long advocated the need to abolish discriminatory reinsurance statutory collateral requirements and is pleased to see that both the US and EU have worked so hard to achieve this. www.chart-exchange.com

Lloyd's has long advocated the need to abolish discriminatory reinsurance statutory collateral requirements...”

the important role that the states play in the supervision of insurance and reinsurance.

Lloyd’s is also pleased that the bilateral agreement provides for greater coordination and cooperation between the supervisory authorities of the EU and the US, the world’s two largest insurance markets, which will be good news for customers and businesses alike.

“The bilateral agreement between the US and EU provides a pathway and timeframe within which the “We hope that the agreement objective of complete abolition of will now receive the necessary statutory collateral requirements legislative and governmental can be achieved and recognises approvals in both the EU and US.” TABLE OF CONTENTS

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NEWS

LLOYD’S REGIONAL UNDERWRITING HUB IN ASIA HOSTS UK gateway to Asia Pacific for Lloyd’s.

loyd’s, the world’s specialist insurance and reinsurance market, today hosted Liam Fox, Britian’s Secretary of State for International Trade, at its underwriting platform in Singapore discuss how the British Government and Lloyd’s can work together to further enhance regional trade, reduce underinsurance, and pioneer the development of the cyber insurance market in Asia.

• Its premium income has tripled since 2009 to reach US$618 million in 2015.

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• Lloyd’s is the largest provider of off-shore reinsurance premium income in Singapore, according to figures from the Monetary Authority Dr Fox and Mr Scott Wightman, of Singapore. the British High Commissioner L l o y d ’ s to Singapore, met with Mr Kent • write Chaplin, CEO of Lloyd’s Asia Pacific, syndicates local and offshore and toured the Lloyd’s Asia platform, from which is Lloyd’s largest operation business outside London providing tailored Singapore through establishment risk solutions across the Asia Pacific the of local service region. companies.

This visit comes as part of Dr Fox’s three-day visit to the city-state to meet with Singapore and British businesses, underlining Britain’s openness and commitment to free trade.

Interior of Lloyd’s of London Building, London HQ

• Lloyd’s Asia is the market’s largest hub outside London, comprising 21 service companies with 23 syndicates and over 380 people.

• The 21 service companies are Allied World, Antares, Argenta, Argo, Ascot, Aspen, Beazley, Brit, • Opened in 1999, the Lloyd’s Chaucer, CNA Hardy, Markel, MS Asia platform in Singapore is the Amlin, Munich Re Syndicate, SOME FACTS ABOUT LLOYD’S ASIA PLATFORM IN SINGAPORE:

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Newline, QBE, Sompo Canopius, Standard Syndicate, Starr, Talbot, Tokio Marine Kiln, and XL Catlin.

• Their specialist underwriters provide cover across a diverse range of risks in 47 classes of business, with property, marine, energy, cargo, and terrorism being the market’s largest lines.

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Image Credit: Lloyd’s of London

LLOYD’S REGIONAL UNDERWRITING HUB IN ASIA HOSTS UK SECRETARY OF STATE FOR INTERNATIONAL TRADE

NEWS

INGA BEAL DESCRIBES LLOYD’S IN MIAMI SPEECH In a recent speech given to during a Meet the Markets meeting in Miami Lloyd’s of London CEO described Lloyd’s of London and what makes it unique. Below are excerpts from her speech: ABOUT LLOYD’S

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ome of you here may not be so familiar with Lloyd’s, so I have a little explaining to do –we are the only specialist insurance and reinsurance market in the world. We have a truly global reach, operating in more than 200 countries and territories worldwide.

For almost 330 years we have been underwriting human progress; Lloyd’s syndicates insured the first cars; the first planes; and the first satellites. We pioneered business interruption, D&O, and earthquake insurance. Today we are leading the world on new risks like cyber or supply chain disruption.

The world’s largest insurance companies set up syndicates at Lloyd’s in order to write specialist insurance for the world’s largest 14

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companies. Today we are home to 57 insurance businesses - or managing agents as we call them.

And between them they manage more than 80 syndicates.

coverholders, who are also a very important part of our distribution arm. They understand their customers’ risks and needs.

The clustering Sometimes of broking and syndicates under writing c o m p e t e ; expertise is sometimes they what gives collaborate. And Lloyd’s our much of Lloyd’s unique edge. business works If you ever by subscription, find yourself where more than in London, get one syndicate in touch to takes a share of arrange a visit the same risk. This to the Room allows Lloyd’s to in the Lloyd’s lead the world building – in covering large four floors of and complex risks. activity where brokers and And we are still u n d e r w r i te r s a fully brokered Inga Beal, CEO, Lloyd’s of London c o n d u c t market.

Lloyd’s thousands of has no sales force as such and has face-to-face transactions every outsourced distribution to brokers, day. It is this interaction that over who have been critical to Lloyd’s hundreds of years has helped forge development over the centuries, our reputation for innovation. bringing risks from all over the world to our market.

In the corporate centre of Lloyd’s, we are guardians of a special We also have another source of feature of the Lloyd’s market – a distribution where syndicates central mutual fund. delegate underwriting authority to TABLE OF CONTENTS

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NEWS In order to protect this fund we approve all syndicate business plans and also set the level of capital that is required to back those business plans. Each member at Lloyd’s has to deposit a certain amount of capital as Funds at Lloyd’s – which means it can only be used to pay claims to Lloyd’s policyholders.

multiple distribution channels you can access our underwriting expertise and knowledge in more than 200 territories across the world.

packaged up and commoditized, attracting this new capital and driving down prices. Insurers are cutting costs and changing their growth strategies.

All our policies are backed by our Central Fund, which as I mentioned earlier, backs every insurance policy that is written by us. This is unique Syndicates also have to make to Lloyd’s. a contribution each year to the central fund which is there to pay And we are investing in innovation out if one of the syndicates doesn’t and technology to make it easier have enough capital to fulfill their for you to do business with us. policyholder liabilities.

Thank you for joining us today and INNOVATION enjoy the networking.

Technology is also affecting brokers.

Now customers can go direct to insurers, challenging distribution models. Broker facilities are becoming increasingly popular.

We are also helping businesses navigate the fast-changing risk landscape by providing insight into new and emerging risks – and by developing new products.

This mutual aspect of the market makes Lloyd’s totally unique. It also provides the financial strength so desired by our customers. Our capital position remains strong, For example, last year, we created 15 with our net resources totaling over new products for cyber insurance. $35.6 bn at the half year 2016. And Lloyd’s is renowned for innovation, all syndicates at Lloyd’s are backed and through its reports on by our excellent ratings – A+ from emerging risks, market intelligence S&P, A from A.M. Best, and AA- from and the combined expertise of the Fitch. syndicates, Lloyd’s offers businesses in this region additional, bespoke So that is a very brief overview of coverage the local market does not who we are, and how we work. have the capacity to offer.

MARKET CONDITIONS

So now to some global industry trends, including a word on market Lloyd’s is helping to grow the conditions – whether you are an insurance market here, and across insurer or a broker, it’s tough at the moment.

Latin America.

SO WHY WORK WITH LLOYD’S?

We support business growth at home and abroad. Through Lloyd’s www.chart-exchange.com

Low interest rates are attracting new capital into insurance markets.

Technology is allowing risks to be TABLE OF CONTENTS

At the same time, businesses are finding themselves exposed to new threats such as cyber-attacks and new liabilities created by new technology. Just who is responsible for a driverless car crash?

All of these changes are taking place at a time when we are seeing a change in attitude towards globalization, with both Brexit and Trump’s election based on a more protectionist approach, as I mentioned earlier.

DISTRIBUTION

Faced with difficult market conditions, Lloyd’s is working hard to make sure that the ways you access the Lloyd’s market are as efficient and as simple as they can be.

We’re committed to growing our coverholder model. It’s is an excellent way for us to offer local Lloyd’s policies to customers.

See Inga Beal Page 35 FEBRUARY-MARCH 2017

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ANALYSIS - WILSON ELSER

BETWIXT, BETWEEN AND BEQUEATHING PROPER PLANNING NOW WILL HELP AVOID AN UNWANTED “GIFT” LATER

By Scott R. Schaffer and Rick R. Meyer, Wilson Elser

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rusts & estates law inherently involves sensitive and personal matters, which makes attorneys who practice in that area uniquely susceptible to the assertion of legal malpractice claims by unhappy clients and others. Recently, the frequency and severity of trusts & estates claims have risen significantly and are now among the leading legal malpractice claims.

across the country, inviting claims from non-clients such as heirs or beneficiaries. Additionally, though most jurisdictions have specific statute of limitations periods for bringing a legal malpractice claim, many contain an exception applicable to trusts & estates lawyers. Generally, the exception will extend the statute While liability of trusts & estates of limitations when the injury attorneys was historically caused by the alleged error or predicated on privity with the omission does not occur until the client, this requirement has death of the person for whom the largely eroded in jurisdictions professional service was rendered.

As the transfer of wealth from the immensely populated generation of baby boomers to subsequent generations has commenced, the escalation in claims will likely continue as succession planning occurs more frequently, along with the opportunity for alleged errors.

Scott Schaffer has practiced in the insurance coverage area throughout his legal career, with a current focus on claims under directors and officers liability, professional liability and employment liability policies. As a founding member of the firm’s Insurance-Reinsurance Coverage practice, Scott is a coordinator of the national Directors & Officers and Employment teams. He serves as national counsel and claims coordinator for D&O, LPL, E&O and EPL programs originated in the United States, Bermuda and London.

Rick Meyer concentrates his practice on insurance coverage, representing insurers in general liability, professional liability and employment practices liability matters. He works for both domestic and international insurers. Prior to joining Wilson Elser, Rick worked at a firm that represented the interests of insurers, handlings claims under employment practices liability, general liability, and directors and officers liability.

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ANALYSIS - WILSON ELSER

However, trusts & estates attorneys potentially can reduce their exposure to malpractice claims with a better understanding of their role and who may be entitled to bring a claim, as well as being able to identify potential conflicts of interest and knowing how to address them.

The following scenarios, derived from actual claims, highlight some of the most common pitfalls experienced by trusts & estates attorneys.

uncle’s lack of capacity.

This scenario occurs all too frequently. Despite the temptation to assist, attorneys should distance themselves from drafting a will for a family member, particularly Generating and keeping clear documents that truly when the attorney is also a beneficiary under the the testator’s wishes and subject will or trust.

depict double-checking those testamentary documents to ensure compliance with the testator’s wishes will enable an attorney to decrease the likelihood of a malpractice claim.”

ASSISTING A FAMILY MEMBER WILL ALWAYS BE RISKY

An attorney was sued individually and as trustee for a Trust by his aunt in connection with the distribution of his elderly uncle’s estate. The attorney’s aunt filed a lawsuit alleging the attorney manipulated his uncle into changing his estate plan on his deathbed to provide the attorney and his children with a larger distribution of the estate than that which was provided to the aunt. The original Trust provided that the attorney would receive approximately 10% of the estate and the aunt would receive the www.chart-exchange.com

balance. While in the hospital, the uncle was informed he was dying of congenital heart failure.

That evening, the uncle’s caretaker called the attorney, who

Aside from potential legal culpability, an attorney has an ethical obligation to direct a family member or client to another lawyer if the attorney or his family was not his uncle’s regular lawyer, member will receive a substantial to tell him that the uncle wanted bequest.

Recognizing the to change his will. The following potential for client dissatisfaction day, the attorney worked with his is the most effective way of uncle to prepare a handwritten preventing claims. If a conflict will, which left 10% of the estate arises or if an heir or beneficiary to the aunt, a small gift to the needs legal advice, it is important caretaker and the remainder to for the attorney to recommend the attorney as sole beneficiary. that independent counsel should be engaged. By doing so, the The attorney then instructed attorney can ensure that he or the uncle’s regular lawyer of the she is not accused of a conflict of changes to be made to the Trust. interest or violation of any duties.

After the uncle passed away, the aunt filed the lawsuit seeking to rescind the Trust and void the gift to the attorney based on the See Wills: Attorney Exposures Pg 19 TABLE OF CONTENTS

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NEWS

RICHARD PRYCE OF QBE APPOINTED TO LLOYD’S FRANCHISE BOARD

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loyd’s announced today that Lloyd’s Franchise Board. There Richard Pryce, CEO for QBE is no shortage of major issues European Operations has approaching and the role of the been appointed by the Council of Board will be critical in ensuring Lloyd’s as a non-executive director the market can navigate them of the Franchise Board, the body successfully and thrive.” which is responsible for the day-to-day John Nelson also running of the paid tribute to the Lloyd’s market. work of Nicholas Mr Pryce, who takes Furlonge. up his role as a market connected “Nick has played a non-executive tremendous part director in January in the success 2017, replacing and growth of Nicholas Furlonge, Lloyd’s over the who has retired last decade.

Richard Pryce from his role on He has been the Board after nine a tremendous years of service. supporter of the need for the market to modernise and the aims Welcoming Richard Pryce to the of Vision2025 – and he has always Franchise Board, Lloyd’s Chairman given the board excellent advice.

John Nelson said: We all wish him well in the future.”

Committee in May 2013.

• Appointed CEO in October 2013.

• ACE Group 1993-2012 Regional President, ACE UK & Ireland 2007-2012 • ACE Global Markets 2003 – 2007 • President of ACE Global Markets & Active Underwriter for Syndicate 2488 Director of AEGL & AUAL • ACE Global Markets 2001 – 2003 Director of Financial Lines & SVP Financial Lines ACE Overseas General (Syndicate 2488) • ACE Underwriting Services 1999 – 2001 Director, ACE Underwriting Services

• Ockham Holdings/ACE London Services 1993 – 1999 Professional Lines Underwriter/Class “Richard has unrivalled experience Mr. Pryce will serve an initial term Underwriter for Syndicate 204 of the market both here in the of three years.

UK and globally. He will bring • R.W. Sturge 1981 – 1993 an informed view that will help BIOGRAPHY OF RICHARD PRYCE challenge the board and Lloyd’s • QBE European Operation • 1990 – 1993 Director of Claims to ensure we are continuing to September 2012-to date. Joined and Claims Manager for Syndicate support the market in the best QBE European Operations as 204 way possible.”

Deputy CEO and appointed to Boards of QUL, QIEL and QBE Re. • 1981 – 1990 Richard Pryce said: “This is an Joined the QBE Group Executive Various Claims roles exciting time to be joining the 18

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ANALYSIS - WILSON ELSER Continued From Page 17

interests. Near the end of the twoyear period, the caretaker met with the attorney to discuss the Trust. Pursuant to the caretaker’s request, the attorney amended the Trust leaving the entire residue to the caretaker and designating her as Successor Trustee.

challenged the probate of the will, which had disinherited her, and sought to admit a prior will. The daughter asserted that the formation of the will was hindered when the attorney allowed beneficiaries to be present as the client advised him of her testamentary intentions, Upon the decedent’s passing, but did not inquire as to why the the RCC sought to invalidate daughter was being disinherited PAY CLOSE ATTENTION TO ALL the amendment on the basis nor assess whether there was any PARTIES … EVEN WHEN THEY ARE NOT that the attorney had failed to undue influence.

THE CLIENT communicate with the decedent In another matter, litigation or attempt to confirm his In the prior will, distribution arose out of the attorney’s capacity, and never received of the client’s estate was to be representation of a caretaker consent to accept instructions of managed by an executor, who subsequently filed and decedent’s son a third-party action in connection with against the attorney the drafting of an d e m a n d i n g amendment to the unspecified actual decedent’s Trust. Prior damages and to the amendment, attorney’s fees.

40% of the residue of the decedent’s estate There are several was to be distributed valuable lessons to the caretaker, to be learned from 30% to a religious these two scenarios. community center The attorneys in (RCC), 20% to the each instance decedent’s son and appeared to be 10% to a longtime acting on behalf of friend. The decedent’s The Will of Alfred Nobels - November 25th, 18i95 the best interests son was designated Credit: Wikimedia Commons of their clients as Trustee, and an and likely did not affiliate of the RCC was designated Successor Trustee. a beneficiary of the Trust. The RCC consider the interests of others. brought a lawsuit asserting causes Moreover, the attorneys likely The RCC alleged that for a two- of action against the lawyer for did not foresee being sued by year period the decedent’s elder abuse and wrongful taking. individuals or entities they did not represent. physical and mental health had severely deteriorated, which In a similar case, an attorney restricted his ability to carry out prepared a new last will and normal activities or to protect his testament for a client. The client’s daughter subsequently See Wills: Attorney Exposures Pg 35

WILLS: ATTORNEY EXPOSURES

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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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ANALYSIS

IS YOUR PROGRAM LOOKING FOR WAYS TO SAVE MONEY? LOOK AT YOUR CLAIMS COSTS

by Rick Ruiz, MVP, York Programs

Industry veteran and York Programs Managing Vice President Rick Ruiz provides some simple but impactful advice: look at your claims costs.

W

hen it comes to maintaining profit goals today, the insurance industry faces some definite challenges. Dealing with the effects of an extended soft market cycle, there is downward pressure on rate, capacity is abundant and in most cases, investment returns low.

In the programs space, you can see

how this is affecting business as underwriting guidelines tighten and programs shrink, dropping off non-renewing accounts that don’t meet their expected loss ratio requirements. Carriers are evaluating their portfolios and exiting certain programs and classes of business as they attempt to maintain profit standards. It’s a scenario we’ve not seen in quite a while.

The focus in many organizations has turned to evaluating their expense structures in an effort to reduce costs while waiting for market conditions to turn.

I’ve been a part of many conversations over the last several months with carriers and MGAs

alike, and their concern is evident.

There’s real pressure on business leaders in the program space right now to maintain profits, and they’re looking for solutions to the problem.

My suggestion: take a good hard look at your claims costs.

As a major expense item, any savings in your claims cost structure can have a significant impact on the bottom line. A tweak in process or a change in claims personnel has the capability to significantly move the needle. Look beyond the obvious, and be open to better, more efficient ways of managing your claims. \ See CLAIMS COSTS Page 22

ABOUT THE AUTHOR: As Managing Vice President for York Programs, Rick Ruiz is responsible for the overall direction, business development, brand position and execution of the programs marketplace strategy at York Risk Services Group. Rick and his National Sales Team work with carriers, MGAs and program administrators to design long-term claims and loss control solutions for insurance programs.

Prior to joining York in 2010, Rick was Regional Vice President at Zurich Financial Services, where he spent over a decade focused on identifying and developing profitable programs for Zurich’s Program Division. Rick has a degree in Business Administration from Georgia State University and is a member of the York National Sales Council.

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ANALYSIS - CLAIMS COSTS Continued From Page 21

CLAIMS COSTS I’ve outlined a few areas where a shift in claims process, technology or the right partner is very likely to make a difference.

CLAIMS SPECIALISTS WILL SAVE YOU MONEY

Any business that’s been involved in a claim will tell you, one of the main drivers of a good outcome is the experience and specific knowledge of the professionals managing and defending that

claim. Claim specialists, who have years of experience adjusting certain types of losses, are far more apt to drive a positive outcome for their clients.

Simply put, a specialist is able to ‘see’ things in a claim that a generalist may not. With their years of experience and broader base of industry knowledge, a specialist will know where to look for the facts, and what questions to ask.

And that can directly translate to better outcomes and lower claims costs.

the industry, a claim that ends up in court can cost anywhere from 5 to 15+ times more than one that is resolved beforehand.

An adjuster that understands the industry, applicable statutes, and the nuances of the particular loss can make a quick and confident judgment call that can save their client big dollars.

I have long watched our specialty claims teams here at York quickly take charge of complex losses – performing thorough investigations, securing job sites, preserving evidence, applying Arguably the greatest way an their knowledge of state law, experienced claims specialist can etc. They do not hesitate to push contribute is keeping claims from back on plaintiff’s attorney if the going to litigation. Depending on facts warrant and move toward resolution with the speed and confidence that only experience can provide.

Having a claims partner alongside you means another

set of ‘expert eyes’ that can help prevent costly stumbles.

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An alcohol-related critical injury was alleged to have occurred following claimant’s patronage at a client’s restaurant. The assigned adjuster, a specialist in dram shop claims, quickly reconstructed a timeline and closely analyzed the toxicology reports. With an www.chart-exchange.com

Image Credit: Creative Commons

One particular loss our restaurant/food services claims team managed stands out as a good example of why a specialist is so critical:

ANALYSIS - CLAIMS COSTS understanding of how alcohol burns in a person’s system, and comparing that to the facts in the claim report, she was able to determine that the alcohol consumed at the client’s location could not possibly be the cause of the loss.

Liquor liability claims present a tremendous exposure because they often involve severe injuries, criminal investigations and can attract business-damaging media coverage. But often in alcohol-related accidents, plaintiff’s attorney will sue every establishment that serves alcohol within the general vicinity of the accident – a way of going after the ‘deepest pockets’ for their client.

• ‘Spot check’ trends on the micro level, allowing you to see demographics and loss exposures and get out in front of potential issues before they become real (and costly) problems.

Today’s soft market continues to challenge the insurance industry to find innovative ways to maintain their profit objectives.

In an ongoing environment of rate reductions and low investment returns, where can you turn to find margin relief?”

That’s exactly what happened here. But thanks to the specialized expertise of the adjuster, this story had a happy ending for the client. If your claims are not being handled by specialists, there’s money being • Drive loss control efforts - Your technology needs to be powerful left on the table. Period. enough to turn volumes of raw THERE’S COST SAVINGS IN YOUR DATA claims data into information you – MAKE SURE YOUR TECHNOLOGY CAN can actually use on a regular basis. Does your RMIS have an UNLOCK IT. Here’s the thing when it comes to intuitive dashboard that lets you technology: like any tool, it should see important stats at-a-glance? Is make getting an important job it flexible enough to measure and done quicker, easier and more display the KPIs that matter most to effectively. There’s a gold mine of your business?

A CLAIMS PARTNER, NOT JUST A CLAIMS HANDLER

A real claims partner is so much more than a vendor; they have a vested interest in your business and will work side-by-side to achieve your goals.

True, they may handle your claims day-to-day. But if the relationship is consultative in nature, if the conversations becomes more ‘Hey – your claims data is telling us something, and we need to address it’ or ‘Our experience tells us that it might be more advantageous for you to approach this situation differently’ – you’ve got a partner, not just a vendor.

And having a partner alongside you means another set of ‘expert eyes’ that can help prevent costly stumbles.

So, what you need to do is simple: hold your claims partner accountable. You have the right to expect adherence to goals, flexibility to adapt to your programs needs and an eagerness to improve when needed.

By holding your claims partner accountable, staffing with claims specialists and utilizing technology that delivers useful information in your claims If your claims partner is not making actionable information, you’ve data. Information that can help the investment in technology that gone a long way in ensuring a you: can deliver the data you need to strong financial contribution • Continually inform, update and drive good business decisions, from your claims operation – you’re missing out. today and down the road. enhance underwriting guidelines www.chart-exchange.com

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ANALYSIS - PREMIUM FINANCE

WHY PREMIUM FINANCING IS A GOOD FIT FOR COMMERCIAL INSURANCE COMPANIES

F

or too long, commercial insurance companies had too few options where premium financing is concerned. These business entities can provide an additional source of revenue, yet require time and effort to manage and maintain. As a result, commercial insurance companies

frequently overlook the potential for added profits.

That challenge is why we decided to step up to the plate with an innovative solution for commercial insurance companies. By bringing to the table our own skills in the often complicated area of premium

financing, we enable chief executive officers, chief financial officers and other members of the C-suite to have confidence that their business needs will be met and exceeded at the highest possible level so they can focus on the important work of running their business day to day.

You can anticipate $30,000 to $40,000 in net profit per $1 million financed.

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ANALYSIS - PREMIUM FINANCE It’s understandable to have questions about this type of business arrangement, which is why we’ve taken the time to create a brief overview of our program and the kinds of services we offer to commercial insurance companies just like yours.

Here’s why premium financing works for commercial insurance companies

Image Credit: Creative Commons

Since 1989, we have been serving insurance companies by providing them with the resources they need to run their businesses of the highest caliber possible.

This means taking several steps to build a premium financing organization within their own business.

a turnkey solution for your premium financing business. As a commercial insurance provider, your time is taken by critical business decisions, financial management and customer service. We help you by doing all of the work so you can focus on your core business without becoming distracted by the ins and outs of running a premium financing company.

The first thing we do is agree to create a profit center for your business.

Our objective isn’t to create another avenue for you to send hard-earned revenue outside of your organization.

Instead, we aim to help you take advantage of the internal skills and resources you already possess.”

The first thing we do is agree to create a profit center for your business. Our objective isn’t to create another avenue for you to send hard-earned revenue outside of your organization.

Instead, we aim to help you take advantage of the internal skills and resources you already possess. You already work in the area of premium financing. We simply make it more convenient for you to manage, and our clients generally see from $30,000 to $40,000 in net profit per million A core component of our solution dollars financed as part of this is technology including an innovative solution. online quoting and management system that’s robust yet easy to The next step we take is to build understand and apply to any www.chart-exchange.com

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commercial insurance business.

Our industry-leading tools are provided by trusted vendors with platforms that are flexible and powerful enough to handle any business need.

Your insureds have complete confidence in this model because of additional features that have proven their value in the marketplace. These features include electronic billing, online account management, aroundthe-clock phone support and much more. Your insureds can even make payments online or over the phone, ensuring the process is as smooth for them as it is for your internal management team.

You can have added confidence that premium financing is the right decision for your company because of the leadership of our organization. Our CEO and chairman is David E. Gebhardt, our CFO and EVP is Travis B. Klingler, CPA; and our CTO is Chris Gebhardt. Together, we have the depth of knowledge and experience to answer your questions and provide the confidence you need to incorporate a premium financing division into your organization.

Whether your commercial insurance company is wellversed in premium financing or is seeking a partner you can trust to help you grow your business, choose COST Financial Group. We look forward to working together.

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Proud Sponsor of

Merger & Acquisition Services

serving the insurance industry Merger & Acquisition Services is a

specialist advisory and financial services

firm specifically to participants within the insurance industry.

Our mission is to provide

concierge-level services and expertise

within the insurance industry by assisting firms with their corporate development and acquisition/divestiture objectives.

M&A Services is

solely focused on the insurance industry.

This allows our advisors to obtain critical industry knowledge and subsequently, provide clients with sound advice.

Our Services Agency M&A Transactions Carrier M&A Transactions Agency Financing Capital Raising Strategic Advisory Valuation Services Program Business Renewal Rights Fronting

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more than 100 transactions in 10 years and has earned continuous placement within the "Top 5 Financial Advisors in Insurance Underwriting" according to SNL Financial.

26

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ANALYSIS - M&A SERVICES

HOW MUCH IS MY AGENCY WORTH?

by Trevor Murgio

O

ne of the first questions that most agency owners ask me when they begin to think about divesting their agency, is “how much is my agency worth?”.

It is a difficult question to answer accurately without first reviewing and recasting their financial statements.

In this article I will cover the process used by professionals to recast or create a proforma financial statement to determine the pro-forma EBITDA (Earnings, Before, Interest, Taxes, Depreciation, Amortization) for an insurance agency. Many agency owners still believe using a multiple of revenue is the way to determine the firm’s value. However, banks, private equity sponsors, and strategic acquirers utilize a multiples of EBITDA method to value agencies. The main reason to use EBITDA as a valuation metric rather than revenue is that EBITDA offers a clearer reflection of a firm’s operations by stripping out expenses that can obscure how the company is really performing.

To begin the recast process, you will need your most recent profit and loss statements, typically a banker will recast the last 3 to 5 years of agency’s financials to help determine the company’s overall growth curve and to assess the stability of its earnings.

For ease of demonstrating the recast process I have created a condensed P&L statement (Figure 1) which only shows a few line items, many of which needed to be adjusted. Many other line items have been condensed into the Other Expenses line item for simplicity in this example.

In the far right notes column of figure 1, each adjustment made is individually numbered. Below are the detailed adjustments made and the rational for each adjustment.

1. In adjustment number 1 interest income has been removed because it is not operating income, and in this scenario will not pass to the acquirer. Any other non-operating income would also be treated in the same manner. However, if an agency also has a premium See Agency Value Page 33

M

Image Credit: Creative Commons

r. Murgio serves as a manager for M&A International LTD, an affiliate of Merger & Acquisition Services. His responsibilities include financial analysis, research, client support, and project management. Prior to joining Merger & Acquisition Services, Mr. Murgio worked for Indemnity Insurance Company of DC as a Risk Manager. Mr. Murgio earned his B.A. Degree from Elon University. He holds the Series 7, 79, and 63 licenses.

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NEWS

LLOYD’S OF LONDON LOOKS TO LUXEMBOURG

By Matt Basile

Lloyd’s subsidiary. Lloyd’s is also considering Ireland, Germany, Belgium and the Netherlands. Dublin, Ireland is a strong contender due to its proximity and language. The small island country of Malta has already been ruled out as an option.

S

ince Prime Minister Theresa May has announced that Great Britain is not looking for a “Soft Brexit” and that the UK will be leaving the single market, Lloyd’s has begun implementing its contingency plan. Its plan is to open a subsidiary of The European market represents about 11% of Lloyd’s Lloyd’s of London in a country that continues to be business, by setting up an EU subsidiary Lloyd’s part of the European Union. would be able to retain access to the European single market. Lloyd’s has made it clear that retaining access The Press Association has reported that Luxembourg to the single market is a top priority. is currently the number one contender for the new Lloyd’s has stated, “We are continuing to work through the process of establishing a subsidiary in the European Union and no decision has been taken on where that will be. We want o be able to provide our customers with a seamless access to the European Union and vice versa – as we know businesses in Europe will want to be able to access the Lloyd’s market.”

Proud supporters of CHART

I

n other news, Lloyd’s of London recently introduced a ban on alcohol consumption, even during lunch, between the hours of 9-5PM.

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Lloyd’s Bans Alcohol Consumption During Core Working Hours

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The ban, not without controversy, seeks to alter a culture long ingrained in many executive office environments and may reflect an increase in the power and influence of the HR department and the role of compliance. There is also a greater focus currently on employee health and health costs, all of which can be affected by the proverbial 3 martini lunch.

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NEWS

BRUCE CARNEGIE-BROWN CONFIRMED AS NEXT CHAIRMAN OF LLOYD’S

B

ruce Carnegie-Brown is to become the Chairman of Lloyd’s following a meeting of the Council of Lloyd’s where his appointment as successor to John Nelson was approved unanimously.

This appointment also had the unanimous support of the Lloyd’s Franchise Board.

said:”Quite simply, this is an excellent appointment. Bruce has an extensive career in financial services, with major global firms particularly in insurance where he brings a deep knowledge and

The Council today confirmed that Mr. CarnegieBrown, Chairman of Moneysupermarket.com Group and vice-Chairman of Banco Santander S.A., will take up the position in June of this year. This appointment is subject to formal approval and consent from the Prudential Regulation Authority and the Financial Conduct Authority.

Commenting on his appointment, Bruce CarnegieBrown said: I’m delighted to be joining Lloyd’s of London and to have the chance to work with a very talented group of market professionals who all share a passion for enhancing London’s position as the preeminent global centre for structuring and placing complex insurance risk.”

John Nelson, who is retiring after nearly six years as Chairman, 30

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Bruce Carnegie-Brown

offer Lloyd’s a unique perspective on how we conduct our business and succeed in today’s marketplace. As we take forward our plans to modernise the London market and ensure it remains the hub of specialist insurance and reinsurance, Bruce’s input will be invaluable.”

Bruce Carnegie-Brown has over thirty-five years of experience across the financial services. He was Chief Executive for Marsh Europe between 2003 and 2006, Non-Executive Chairman of Aon UK Ltd from 2012 to 2015 and was also a Senior Independent Non-Executive Director at the Catlin Group plc between 2010 and 2014. He will be stepping down from his current role as a Non-Executive Director of JLT Group plc.

understanding of the broker and underwriting market. Bruce is arriving at an exciting time for Lloyd’s with opportunities and challenges ahead of us.”

Currently, he is Chairman of Moneysupermarket Group since his appointment in April 2014 and a vice-Chairman of Banco Santander since February 2015. He previously worked at JP Morgan for 18 years Chief Executive, Inga Beale DBE, across a number of senior roles, said: “I am looking forward to ran 3i Group plc’s Quoted Private working with Bruce. His wide Equity Division from 2007 and was ranging experience across a Senior Independent Director at insurance, banking and with Close Brothers Group plc.

Moneysupermarket Group will TABLE OF CONTENTS

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ANALYSIS - M&A SERVICES Continued From Page 27

WHAT’S MY AGENCY WORTH?

leaves us with $250,000 principal compensation in the pro-forma column. It is also not uncommon to make the opposite type of adjustment when the principal is taking a less the market value salary and taking the majority of their compensation as a distribution.

4.

This agency’s principal had a fractional jet membership which the company paid for. This membership was primarily used for personal use and it would be unnecessary for an acquirer to continue to carry its expense. This type of adjustment is also used financing company and earns interest income from for other owners perks such as boats, RV’s, private club that operation, these earnings would not be adjusted membership dues, vacation properties or any other out as that is part of their normal business income. personal expense perk that runs through the business’ P&L. In adjustment number 4 we make a $281,976 adjustment to zero-out the pro-forma column for this Aviation expense line item.

5. In this scenario the principal owned the building that their offices occupied and leased it to the agency for $95,000 above market value.

In adjustment number 5, I have normalized the rent to market value of $139,603 in the pro-forma column. In other cases, you may need make an adjustment to increase rent in scenarios where the owner doesn’t take rent or takes less then market value rent for a building they own, or in cases where the acquirer would be required to get new offices to accommodate a larger combined entity post transaction.

Figure 1

6. Hands down the most common personal expense on company’s P&L is inflated Travel / Meals 2. & Entertainment expenses, and this example is no In this company the agency owner’s spouse was different. The amount of the discount you apply here receiving a $100,000 salary from the firm even though is based on how much of the expense is personal they did not actually have any duties at the agency. versus how much is actual business expense. In this For this scenario a $100,000 add back adjustment is example I have discounted the $87,650 Travel / Meals made when calculating the payroll in the pro-forma and Entertainment expense by 50% then I use the column. adjusted $43,825 T&E expense when I calculate the Travel / Meals and Entertainment line item in the pro3. In adjustment number 3 the Principal forma column.

Compensation line item is reduced from the $460,000 salary the principal was taking, to a more realistic market See Agency Value Page 34 value salary of $250,000. This adjustment of $210,000 www.chart-exchange.com

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ANALYSIS - M&A SERVICES Continued From Page 33

WHAT’S MY AGENCY WORTH?

line could be worth between 5-10 dollars depending on purchase multiple. At an 8X EBITDA multiple that this agency is likely to trade at this $5,760 cell phone adjustment becomes worth $46,080 at the closing table.

11. In adjustment 11 all non-operating expenses such as Amortization and Depreciation are zeroed out in the pro-forma column, as these are another example of an item that is specific to the individual and will most likely be different for the acquirer.

7. One-time or extraordinary expenses are While this article covers some of the more common another example of a typical adjustment that can be adjustments made to pro-forma income statements it removed or at least discounted. In adjustment number is not a definitive list. As a good rule of thumb you can 8 the one-time extraordinary $85,450 deduct any personal or one-time Recasting or Computer Hardware expense that his extraordinary expenses which are creating agency incurred when updating their acceptable to financing sources and computers and servers is removed. As a pro-forma income strategic acquirers. However, if you this is not going to be a reoccurring statement is imperative are unrealistic or over enthusiastic expense, it is possible to fully subtract to maximizing the value when making adjustments it can $85,450 and zero out the Computer of any agency. Once you create doubt and uncertainty in the Hardware line item in the pro-forma have determined the pro- mind of the acquirers and can lead to column. problems down the road. It’s always forma EBITDA from the best to be realistic when recasting recast we can precisely financials as transactions are always 8.

Auto leases or payments are another typical benefit many agency value the agency using easier to complete when every line principals carry on their P&L. In this the multiple of EBIDTA item doesn’t need to be individually company the Principal had multiple justified or negotiated. method.” vehicles leased for their family’s use.

As the acquirer will not continue paying the leases Recasting or creating a pro-forma income statement after the transaction the $72,654 Auto Lease line item is is imperative to maximizing the value of any agency. completely added back in order to zero-out the expense Once you have determined the pro-forma EBITDA from in the pro-forma column. the recast we can precisely value the agency using the multiple of EBIDTA method. This method is used by 9.

Bank fees are specific to the individual business professional bankers, private equity backed acquirers, and are therefore typically zeroed out as we have done and publicly traded brokers to give the clearest reflection here in adjustment number 9. of the company’s true earnings after the transaction had been completed.

10. Other personal expense that often appears on P&L’s are cell phones, cable and internet bills for the If you have any questions regarding creating pro-forma principal and their family. In this scenario the Principal income statements, agency valuations, the M&A process was running all their family’s cell phone bills through the as a whole, or if you are considering divesting your company. While it may sound like a small ticket line item, agency please feel free to contact me at any time. All it should be noted that every dollar that falls to the EBIDTA inquiries are strictly confidential.

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ANALYSIS - WILSON ELSER Continued From Page 19

WILLS: ATTORNEY EXPOSURES

that the engagement was limited Continued From Page 15 to certain individuals can be persuasive.

Thus, the engagement letter should clearly reflect that the attorney (1) is representing only those individuals for whom they are providing estate planning advice and (2) is not representing any other individuals or entities.

Additionally, while an attorney While the general rule is that an must never forget to serve the attorney owes legal duties only best interests of the client, it is to clients, courts have gradually advisable for non-clients to be eroded the privity requirement, alerted that their interests are not holding that in limited represented by the attorney. circumstances a non-client may state a claim for malpractice if CONCLUSION it can demonstrate the primary When it comes to trusts & purpose of the legal relationship estates attorneys avoiding was for their benefit. legal malpractice claims, clear engagement letters, termination In this regard, many states permit letters and thorough recordthe beneficiary of an estate to sue keeping are as important as an attorney whose negligence knowing the substance of the law. caused the testator’s intended To highlight the foregoing, if a disposition of the bequest to client wants to leave the attorney the beneficiary to fail. To protect or a family member of the attorney against a claim by a dissatisfied a substantial bequest, it is both beneficiary, the testator’s wishes ethically prudent and a best should be clearly documented. practice for the attorney to urge the testator to seek the advice of Additionally, it is always important an independent counsel. for attorneys to be clear in their engagement letters about Additionally, generating and whom they represent and the keeping clear documents that scope of that representation. In truly depict the testator’s wishes those few states that still require and double-checking those privity, the identity of the client testamentary documents to is determinative of who can file ensure compliance with the a lawsuit for malpractice. Even in testator’s wishes will enable those states with relaxed privity an attorney to decrease the requirements, demonstrating likelihood of a malpractice claim. www.chart-exchange.com

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LLOYD’S OF LONDON

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