TEN MOST ASKED ACQUISITION/DIVESTITURE QUESTIONS

by

Craig G. Wolff, FLMI, CLU

 


 

1. Why should a prospective buyer or seller engage the services of an Investment brokerage firm, such as Mystic Insurance Intermediaries?

The acquisition/divestiture process for most buyers and sellers is an event that happens infrequently. There are many aspects that have to be considered to successfully complete a transaction. An investment broker earns his fee by ensuring there are no surprises.

2. What do you recommend to prospective sellers?

First, each seller should have an actuarial appraisal done on their block or company by a consulting actuary. Second, employ an investment broker to market the block or company. At Mystic we can offer a one-stop cost effective package for both of these services.

3. Why, If I am the seller and I have completed my actuarial appraisal, can't I simply market the block or company myself?

You certainly have that option. The investment broker, however, can bring your property to the marketplace without identifying who you are, thus preserving confidentiality so as to not alarm your agents, customers, or employees. He also can perform a very valuable screening process to qualify prospective buyers.

4. I'm a prospective buyer. What advantages does the services of an Investment broker provide to me?

For one, an investment broker will always have a nonpublic inventory of blocks or companies that are for sale. In addition, an investment broker should know whether or not the asking prices are realistic for current market conditions.

5. What are the advantages of buying an existing company versus starting your own?

Each existing company will have its own unique degrees of strengths and weakness' in management, sales force, culture, asset mix, business in force, licensing, systems, and reinsurance. The buyer has the option to pick and choose among acquisition candidates whose attributes best fit the buyer's overall objectives. The end result of your analysis may dictate that forming your own company is in fact the right approach.

6. What alternative sources of financing are available for acquisitions of Insurance companies?

The purchaser may choose after the sale is consummated to sell off blocks, enter into a coinsurance agreement on either the blocks of the company acquired or on the acquiring company's own existing business.

7. Other than cost savings that Is usually associated with coinsurance versus traditional financing of an acquisition, are there other advantages?

The reinsurer providing the coinsurance, assumes the actuarial risks in the business reinsured. With traditional financing you must hope that the stream of profits from the business acquired is what you had anticipated in order to retire your debt.

8. What technical support should an Investment broker bring to the acquisition/divestiture process?

An investment broker should be capable of drafting letters of intent, buy/sell agreements, reinsurance treaties, assumption certificates,. Additionally, your investment advisor should be able to offer reinsurance & structuring expertise, tax, statutory, & GAAP accounting advice and actuarial support, as well as aiding in the regulatory approval process.

9. Will Mystic help me In the actual negotiations?

As your intermediary, we will be with you throughout the entire process. The third party influence of an intermediary can be very valuable during negotiations. We see our primary role as creating a win/win atmosphere for both buyer and seller.


10. Why shouldn't we utilize the services of a traditional "Wall Street" Investment banker for acquisition or divestiture help?


Unlike Mystic Insurance Intermediaries, these sources, often times, do not possess the long-term, in depth, professional experience within the life insurance industry that is necessary to successfully complete an acquisition or divestiture. Our staff has the proven track record that can deliver for you a cost effective service oriented solution to any life insurance company or block of business sale.

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