Due Diligence for a Transfer of Engagements – Presenter: Gary Morley

What is it? The process by a buyer investigating a target to find out EXACTLY what he is buying, its value and risks What is it not? A fishing expedition Steps to protect both parties Why do it? No warranties available

Who does it? Acquirer with help of professional advisors Actuary Legal Finance/accountant Compliance Information Technology (IT) Internal & External Auditors

Areas of enquiry? Actuary:  Solvency position – transferee & combined firms  Valuation assumptions  Expenses - transferee & combined firms  Products of transferee – associated risks  Policy management systems – integration challenges  Solvency II – impact & associated costs

Legal:  Employment; TUPE  Litigation  Intellectual property/IT  Property ownership  Contracts (outsourcing)  Constitution  Insurance  Other areas

Finance/accountant:  Accuracy of accounts  Assumptions / basis of valuations  Returns to FSA / HMRC  Trading subsidiaries  Assumptions relating to marketing  Tax issues

Compliance:  Systems & Controls – Compliance Plan, ML & Financial Crime, TCF, MI, Corporate Governance, Outsourcing, Financial Promotions etc…  Regulatory Status & Relationships..  Business standards  Enforcement action  Persistency / Cancellation

Information Technology (IT):  Stability of IT policyholder systems  Third party IT providers

Internal Auditors:  Appropriateness of the firms internal function/strategy and risk management framework, and any risks that may arise from the approach taken

External Auditors:  Financial controls environment  Accounting policies & balance sheet  Solvency position  Planning assumptions within ‘Financial Conditions Report’ (FCR)  Outsourcing relationships  Unit pricing  Tax

 Land & building  Investments  Returns to FSA / HMRC  Valuations  Solvency II

Problems:  Not knowing the unknown  Timescales  Board involvement & sign-off