The Birth of Transaction Related Insurance Products U
Underwriter Perspective
Jesseman R Pryor III
CEO, Ambridge Partners LLC
jpryor@
ambridgepartners.com
Jesseman R Pryor III is CEO and a co-founder of Ambridge Partners LLC based in New York and Chairman of its European subsidiary, Ambridge Europe Limited. Ambridge and its subsidiaries are managing general underwriters of Transactional Insurance and Complex Management and Fiduciary Liability Insurance solutions. Jess began his career as a Management Liability underwriter at AIG and then served as Senior Vice President Management Liability & Custom Products at Gulf Insurance Group.
JE: Jess, Ambridge Partners now has offices in New York and London and underwrites transactional insurance products globally, how was the company started? JP: My business partner Jeff Cowhey and I were on a plane after concluding a deal where I was the underwriter and Jeff was the broker. The seller was a small family office and had received an offer of US$500m for its business several years prior which had been rejected. Shortly after rejecting that offer, it was discovered that the target’s results had been overstated. At the same time as the target was going through the lengthy process of restating its financials, it also experienced a downturn in its business. The seller now had an offer on the table for just US$100m, so you could say he was a pretty unhappy seller. Just before the deal was about to complete he was served a tax demand letter for US$60m. The European buyer was very conservative with no appetite for tax risk. It turned out that the target’s tax director had been ignoring correspondence requesting information from the IRS. Given the lack of response to their queries, the IRS were claiming a top line figure. Once the target’s advisers had engaged with the IRS, they were able to negotiate with the result being that the US$60m demand actually turned into a US$1m refund. In the US there is a process where any refund over a certain threshold requires a Washington Home Office approval and that can take 6 months. The seller needed to sell immediately and the buyer was only prepared to proceed if it had protection for the entire US$60m. The seller needed the full consideration to pay off other debt and as such was not prepared to accept an Escrow. So the purchase of an insurance backed tax indemnity went ahead allowing the deal to complete to the satisfaction of both parties. The seller made it clear that the deal would not have happened without the insurance policy.
This demonstrated to us the value of having experienced people who can bring real value to transactions in real time. We were both at the stage in our careers where we were looking for an opportunity to do something entrepreneurial and which could add real value for our clients. We initially entered into an agreement with syndicates managed by one Lloyd’s managing agency. Over the years we have added eight insurer partners to the consortium for which we underwrite. Depending on the jurisdiction of the insured or nature of the policy, our programmes are led by either Hiscox or CNA. Our goal has been to have a team of seasoned underwriters who can react quickly in real time and out-service our competition. The senior team has been together for over 10 years and we have developed an internal process where we have been able as a team to bring new service standards to the Transactional Insurance market. I still remember a broker’s surprise when we explained to him that we could underwrite a programme within 24 hours (and then delivered on that). He had previously advised the client that insurance could not be put in place in less than two weeks (which did not work for the client as the transaction was scheduled to close within 72 hours.
JE: How did the products develop? JP: The products today are delivered more quickly and are more customised than they have historically been. A good is example is a deal that Nathan brought us when he was at Willis. His client needed a policy that would completely replicate the terms of a Tax Indemnity. In other words, the policy needed to be a complete “wrap” of the tax indemnity contained in the share purchase agreement. Between us we developed a policy which had just one exclusion and that was the first time to our knowledge that had been done.
Jess Pryor of Ambridge Partners and Nathan Sewell of BVCA Insurance Services discuss the early days and subsequent development of transaction related insurances. By Jason Edwards.
30 Author Viewpoint
Risk and Insurance in Private Equity and M&A 2012/13
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