1. Understated Claim Reserve Liability

Risk 2: Changes in Reserving Practice

Risk 3: Large-Claim Volatility

Risk 4: Inadequate Captive Funding

Following a Transaction

• Gauge the combined company's riskappetite. Post-acquisition, the combined company willbe larger and likely more diverse. Thus, it may be smart to raisethe newly combined company's self-insured retention or insurancelimits. Working with an actuary or a broker to explore the bestcoverage options will help the newly formed company determine itsoptimal retention levels.
• Expedite systems integration. After amerger or acquisition, the new organization will need to determinehow to handle claims and manage risks as one company. It's notuncommon for two claim systems to run concurrently during atransition period, but the company will want to develop bestpractices over time to eliminate redundancies. Bringing in a thirdparty can help expedite the process.
• Consider unwinding the captive. Themerged company may want to consider consolidating the target'scaptive into its own or running off the existing claims.Consolidation generally reduces costs; running multiple captives atonce would be costly. Also, as there are fewer claims leftoutstanding, the ratio of variable claims payments to fixed captiveoverhead expense makes running a separate captive less and lessattractive. Because existing claims could take years to run off,the company may want to perform a loss-portfolio transfer of theremaining outstanding claims.

Jim Toole

Robert Stewart