Insurance risk management case study

How one organization was able to change the terms of a deal based on the seller’s understatement of insurance reserves

The issue: Our client needed to understand whether a retail acquisition target had adequate Workers’ Compensation and Professional Liability insurance.

Our approach: We found that the retail acquisition target had a flawed methodology to estimating Workers’ Compensation and General Liability self-insured loss expense. We identified a loss and premium expense understatement of $4.3 million and $2.6 million understatement of Workers’ Compensation, general and auto liability losses.

The outcome: The findings reduced EBITDA of the acquisition target by $3 million. This was used to establish a successful negotiation position, with the seller agreeing to pay any historic incident claims in excess of the cap, based on the reserves.

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