Insuring Contingent Risks

HWF are able to structure insurance backed solutions to ring-fence potential issues providing certainty if such an issue crystallises.

What makes a risk insurable?

The key function of contingent risk insurance is to remove the financial uncertainty of an adverse determination or crystallisation of the relevant liability. For a risk to be insurable the following criteria are necessary:

• Advice from a credible advisor. This can include due diligence reports, structure papers or legal opinions.
• The risk must be quantifiable.
• The probability of loss needs to be relatively low.

Key points:

• Provides buyers with a recourse mechanism for warranty breaches and claims under the tax indemnity.
• Reduces the likelihood of difficult negotiations.
• The buyer can tactically explore each option in turn with the seller.
• Works best where the limits to be insured are in excess of 10% of the total deal value and over £5m.
• The earlier we are involved, the more value the insurance will add to a transaction.

Issues that can be covered

Known matters relating to:

• Pensions
• Environmental
• Litigation/matters under appeal
• TUPE/Employees
• Contractual liabilities

Balance sheet liabilities/capital release:
If a business has provided for contingent liabilities, insurance can ring-fence such liabilities removing them from the balance sheet.