NS: I think up until that time the majority of innovation and expertise sat within the broking community, certainly in the UK. There wasn’t the same level of underwriting experience so we tended to make the innovative moves. It was always an issue in the early days of transaction liability where the policies were riddled with exclusions. It was a bit like having a bucket with holes in it i.e. it doesn’t matter how good the rest of the bucket is! This factor put a lot of the buying community off the products and we tended to do the deals where really insurance was the only option.


JE: Were there many insurers at that time willing to back these products? NS: Around 2002-2004, capacity was relatively easy to find. We did a number of deals where the limits were £200m plus, where the capacity was writing blind or semi-blind. At the time it was attractive to insurance markets as the premium rates were 3%–4% of the sum insured on the first purchaser warranty and indemnity deals. This really demonstrates how the landscape has changed since then as the insurance capacity is a little harder to come by yet the costs have come down and the cover has improved. At the same time there are more primary insurers, thus giving the majority of buyers more choice.


NS: I’m interested Jess, is it a better market for you now because there are more deals or is it not so good because there is “over- competition”? JP: I actually think that the competition that has been introduced has been healthy for the market. Larger insurance programmes are easier to complete because there is more capacity in the market and don’t require participation by the entire market. In other words, a couple of underwriters can not participate because they don’t have appetite for a given risk and the broker still gets the deal done. Clients also have more choice and can compare the pros and cons of each market’s quote.


NS: I agree, I think it is a healthier market when deals can get done and it is better to do 100 deals at 1%


than 20 at 3%, the market has to find its own level of pricing. Transaction liability has generally been a highly profitable line of business for insurers, so premium was to inevitably track downwards at some point. The reason why there were fewer buyers ten years ago if you take owner-managers for example, they were having to give away 2-3% of what they worked to build when they knew there was nothing in the business to be worried about – so why would they purchase a vanilla W&I policy at that price? But in the case where the underlying rate is 1% or less and you are insuring a quarter or a third of the transaction value it becomes de minimus and seems a sensible product to have in place – so I would say that is one of the more significant changes.


JE: How has the broker/insurer relationship changed over time? NS: One of the frustrations I’ve had is the number of deals that could have been done that didn’t and there has always been a feeling that there were missed opportunities. At the outset of the products the broker would have to have a work-up document to present to insurers because if that was not done, they would not get an audience with markets. But, talking to underwriters now, there seems to be a feeling that this has gone by the wayside to some extent. Is this a result from the volume of business now flowing through the market or is this the brokers acting as they would do on general insurance and just flipping the information straight on to the underwriters?


JP: I would say that the biggest challenge that brokers have when committing resources to these products is that they are based upon a transaction, and as such, the business is non-renewable. Comparing this with a D&O book where you can budget appropriately, this business is completely different. Since these products are so work intensive for brokers (and insurers) what has tended to happen is that when you have a huge volume of deals, marketing efforts drop off as everyone is focused on completing the deals in the pipeline. While this cycle can present challenges for brokers, more and more brokers are looking at this as a substantial


BVCAIS Perspective


Nathan Sewell


CEO, BVCA Insurance Services nsewell@bvca.co.uk


Nathan has been involved in the risk and insurance sector since 1989. With a long-term focus on the investment community he has worked at board level for both multinational and smaller independent companies and has established two specialist insurance businesses since 2007.


Nathan began his career as an underwriter before moving to global broker Aon Limited where he was responsible for the establishment of the London Market’s first M&A transactional liability team.


In 2002 Nathan moved to Willis to become the International Practice Leader of the Willis M&A team.


Nathan’s technical expertise incorporates most insurance classes from general placements to products specifically tailored for the private equity and venture capital arena.


Risk and Insurance in Private Equity and M&A 2012/13


Author Viewpoint 31


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