Page 12 - Representation & Warranties Insurance
P. 12

The Underwriting Process




          A summary of the underwriting process is illustrated in   Once the buyer or seller selects the insurer, the insurance
          exhibit 1. Each stage is discussed further in this section.  broker and carrier will enter into a non-disclosure
                                                                 agreement with the deal parties so that the insurer can
          Exhibit 1:                                             obtain documents and information for its underwriting
                                                                 process. During this process, the insurer gains an
                 Bid Solicitation                                understanding of the deal and parties to evaluate and
                                                                 determine the risk it is willing to assume. As a result, the
                                                                insurer may decide to charge a higher or lower premium,
                      NBIL                                       adjust limits of liability, require specific exclusions, or

                                                                otherwise tailor coverage.
                Insurer Selection                                During its process, the insurer may communicate with
                                                                various parties involved in the deal due diligence process.
                  Due Diligence                                  The insurer may ask about the due diligence process
                                                                 undertaken by the buyer, whether any issues arose, and
                                                                risk-related questions.
                  Negotiations                                   During the underwriting process, the insurer will also
                                                                issue a draft insurance policy. The final policy terms are
                 Bring-down Call                                 often the result of subsequent negotiation between the
                                                                 insurer, the insured, and the insured’s advisers (outside
                                                                counsel and the insurance broker). Once the parties
                 Policy Issuance                                 come to a mutual agreement on policy terms, the insurer
                                                                 will ask the insured to sign a disclosure asserting that
                                                                 there are no known undisclosed breaches prior to issuing
          To solicit initial bids from insurers, the buyer or    the final policy.
          seller will work with its insurance broker to provide
          high-level information to potential insurers, such as   In many cases, the policy is bound upon deal signing,
          a draft transaction agreement and the target entity’s   instead of deal closing. In these instances, the last part
          financial statements. Interested insurers will express   of the underwriting process involves what is known as
          their interest to the broker in what is known as a     a bring-down call. During this discussion, the insurer
          non-binding indication letter (NBIL), which represents    will request receipt of any changes to the operative deal
          the insurer’s initial quote based on its limited review    agreements or updates to due diligence, along with
          of the information provided.                           asking about any issues that have arisen since closing.
                                                                 The insurer will also request that the insured provide
                                                                 such representation in written form.











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