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SA3-12 Exit strategy - selling the company

H

Howard O'Connor

Active Member
Hi all
One of the exit strategies is selling the entire insurance company (Chapter 12 section 6).
I am quite confused about this:
How does this work? Surely if one sells the whole company it means that the same insurer still has all the same liabilities as it has had until now, only that the whole insurer now belongs to a different group? So how has this insurer rid itself of its liabilities?
Does the buying group accept the liabilities? - surely since the insurer is a limited company, there is nothing forcing the buyer to add any funds to it.
Please explain!
Many thanks, and good luck to those taking the exam.
Howard
 
You have to said from the perspective of the owner/shareholders, if they sell the company liabilities are the new owner/shareholder problem as liabilities are completely transferred.
Sales can also be used to sell a part of a company, if for example a company wants to get rid of a specific division because is not part of their core business strategy. (A recent example DLG sold their commercial Lines business to RSA)
 
Thank you for your reply.
In terms of the old owner or shareholders, since they anyway didn't have personal liability, what have they gained by selling the company - the company itself is still in the same position as previously, and the owners haven't got rid of any of their own liability?
Regarding DLG, how could they sell a part of the business without doing some sort of novation or IBT?
 
In the case of the owners if the liability evolves unfavourably the value of the company will be lesser and they will have lost equity in the process. From the perspective of the company balance sheet you are right in pointing out that there is no change in the liabilities itself, but they may be external factors affecting the liabilities including economies of scale, more expertise handling the liabilities at hand, more capital to retain risk, and so on.
With regards to the DLG, and don't take my word for it, I believe they sold separate entities "NIG" "FarmWeb" which were part of the group, hence is like selling a company from one group to other.
As the company is sold in its entirety, including assets and liabilities, staff, etc, then this is not regulated.
That's how I see it in my simple mind and what I can draw from the notes.
Just keep in mind that I will be sitting the exam on Monday so I may just be talking nonsense.
 
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