Specialist risk transfer

Contingent risk insurance offers an insurance solution to mitigate or remove uncertainty in respect of an identified risk. Contingent risk insurance can be secured before, at the time of or after a given transaction.

If a risk relates to legal interpretation and there is sufficient analysis to support a defense, insurance can often be used.

Overview

Contingent risk insurance provides financial cover to the insured in the event of the crystallization of an identified risk. Our team has placed policies that provide financial cover to policyholders in the event of a crystallization of an insured risk including, where possible, defense costs, interest and penalties. The risks have included litigation – both ongoing and prospective as well as a way of dealing with adverse creditors arising from a voluntary liquidation. With respect to litigation, this has involved employment related claims, contract disputes and legal interpretation of tax rulings.

Benefits

Contingent risk insurance can be used to:

  • Take an identified risk off the deal table

  • Increasing the indemnity cap through insurance whilst simultaneously reducing the indemnity cap for a seller

  • Negating the concerns about the creditworthiness of a seller using an A-rated insurer as a counterparty

  • Allow for a clean exit meaning the seller can distribute proceeds of a sale and liquidate immediately from closing, boosting IRR

  • Obtain more protection than a seller is willing to give

  • Transfer a contingent liability from your balance sheet to that of an insurer

Parameters

Scope

Provides financial cover to the insured in the event of a crystallization of an insured risk including, where possible, defense costs, interests and penalties.

Policyholder

Held by the company facing the specific risk in question or, where relevant, the buyer or seller under a purchase agreement.

Policy period

This can completely vary depending on the risk in question but typically up to a maximum of ten years.

Retention or excess

This is typically a nominal amount or nil. In certain circumstances, this will be used to prevent recovery for a certain amount of defense costs.

Policy limit

The estimate amount of the liability plus interest, penalties and defense costs.

Premium

This is calculated on a case-by-case basis and can range between 5 – 20% of the policy limit. Factors affecting the premium include the likelihood of the liability crystalizing, the robustness of the technical defense available and the complexity of the liability.