Avoiding M&A Insurance Problems

Risk Management

PUBLISHED ON: June 8, 2009

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Regardless of the economic cycle, corporate transactions are always taking place, whether through mergers, acquisitions, going private, or, in a recent trend, marriages between financial institutions arranged by the Treasury and the Federal Reserve. These transactions often have at least one common complication: insurance.

For a long time, scant attention was paid to insurance assets in even some of the larger M&A deals. Over the past decade or so that has changed with insurance taking up a more prominent piece of the due diligence checklist. The insurance review, however, usually does little more than scratch the surface. There are a number of reasons for this, including the fact that insurance is typically not a major driving force to consummating a deal and often the attorneys and investment bankers spearheading the deal have little real-world appreciation for the nuances and land mines that inhabit the insurance claims world. Given that, there are some important steps to take to help avoid insurance problems in the M&A process.