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Due Diligence


INTELLIGENT DUE DILIGENCE

Your investments are your lifeblood and protection of profit is paramount – so it is important to insure them intelligently. Corporate governance requirements are escalating and, when considering providing finance, lenders are placing increased emphasis upon risk management.Insurance due diligence requires far more thought than it often receives. Given the growing complexity of risk management, it is important that you have access to specialists with the knowledge and expertise to aid your understanding of the risk transfer solutions available, and who offer independent advice and analysis to help identify and minimise the risk exposures. The cost of inefficient due diligence can be high and can leave shareholders seriously exposed, both financially and legally.

Our Services
We are experienced in this field, with qualified personnel who offer an innovative approach to problem solving. Our services include advice and recommendations on:

  • The adequacy of your existing portfolio to your trading liabilities and protection of assets
  • The cost effectiveness of the covers in place
  • Errors and omissions that could result in losses / claims not being met under your existing arrangements
  • The possible effects of placing a new company into an existing group arrangement
  • The suitability and security of your existing insurers
  • Security and Health and Safety

We will also highlight areas where we believe it important to involve other professional practitioners.

Why choose Lucas Fettes?
Our core philosophy is to provide our clients with a truly personalised service; something that our independent status allows us to provide. We can guarantee named contacts for your day to day business dealings and will conduct a thorough on-site review to enable us to accurately identify your needs and requirements. Our size and standing in the market allows us to obtain preferential rates with insurers and our independence enables us to concentrate on providing our clients with a quality service. Recent Mergers and Acquisitions within the Insurance Broking world have reduced the number of truly Independent Brokers like us, with the ability to give a personal and local service.

Our Customers
A number of recent case studies we have been involved in are detailed below:

  • A sandwich manufacturer being purchased on a 10 x multiple of profits. Their premises (like many in the food sector) were largely constructed using composite panels, which, whilst efficient and hygienic are highly combustible and difficult to extinguish in the event of a fire. Following fatalities to fire fighters, the fire brigade decided they would only contain composite panel fires unless there was imminent threat to life. Insurers consequently increased their premiums in this sector by up to 400% to reflect the increased risk. We highlighted a potential rise in premium from £250,000 to £1,000,000 and the consequent effect on the purchase price. (i.e. 10 x gross profit = £7.5m).
  • A consolidator of small construction companies (£7-10m each) purchased a rapidly growing builder. Inadequate Due Diligence by one of the big four insurance brokers failed to notice end of year adjustments had not been carried out for the last 3 years. Warranties did not cater for the subsequent £500,000 additional premium generated by these adjustments. We identified these adjustments and renegotiated the package.
  • Legionella is classed as a long term pollutant and thus is normally excluded from Public Liability policies – especially important in Property Management/Education/ public facing businesses. Therefore a fatality or closure impacting on profitability would be excluded from any claim payment. We would offer the client cover.
  • A major book retailer with heavy bank borrowings (and subsequent warranties) failed to notice a 50% co-insurance clause on assets and profits cover, i.e. insurers would only pay 50p in the £1.00 in respect of the amount claimed. Insurers imposed restrictions when the client declined to install a sprinkler. Given values at risk, we questioned if the business could have survived a major loss and advised that the Finance Director may have been personally responsible due to corporate negligence. We identified this as one of a number of deficiencies and changed insurers.
  • A company with a turnover of £75m and a closed Final Salary Pension Scheme. The company wanted to sell, but understood that before it could realise its value, it must first put in place arrangements to contain and give balance sheet certainty over the costs of the Pension Scheme. Valuations/estimates of the deficit varied between £660,000 per annum or £4.2m upfront. We quantified this and worked with the client to agree a plan to provide certainty to the cost and implementation of strategy.
  • Two owner directors are looking to retire and the Company is in the process of undergoing an MBO. The company has a Final Salary scheme with a deficit and the assets of the business only marginally exceed that deficit. The retiring directors do not wish to remain responsible for the scheme. The MBO team is highly geared and cannot see how take on board the scheme or obtain approval to do so. We worked with the trustees to review the covenant of both parties, being careful to manage any conflicts of trustees being existing business directors or part of the MBO team. With this information we negotiated with the Pensions Regulator on behalf of the trustees and secured an agreement whereby the MBO team could accept the responsibility of the scheme despite having no assets. This clearance from the Pension Regulator then protected the existing directors from being subject to a Financial Support Directive should anything go wrong in the future. Without this clearance, the existing directors would never have shrugged the responsibility of the scheme until all benefits had been settled.