Purchasing Distressed Agency Book of Business Before Bankruptcy

WBF

Expert
40
I may have the opportunity to purchase an agency's assets (book of business.) I am concerned because they have mentioned filing bankruptcy and said if they do then I could buy the assets out of bankruptcy. I am concerned if they file bankruptcy then the assets could literally be worth nothing because the carriers could choose to cancel contracts. If this were any other business then purchasing assets out of bankruptcy could be a positive. Does anyone have any experience with this?
 
Make the deal contingent on the carriers transferring the policies and like always, have a reserve or clawback for abnormally high loss of insureds.

Unless you plan on rolling them to another carrier, it is a plus for the current companies. They get rid of the uncertainty of a bankrupt agency and hopefully the insureds stay put.
 
Would you not agree though it would be preferable to make the deal happen instead of them filing bankruptcy even if it costs me more money?
 
Possibly. It would definitely avoid your future insureds from being with a bankrupt agency. You have to think that isn't good for the book of business.

Just make sure you pay fair market value for it. If they still go through bankruptcy the creditors might go after you if it looks like a sweetheart deal.
 
I would prefer to get the transfer done prior to bankruptcy, but you would have to structure the deal to protect yourself against the bankruptcy. It could negate any clawback opportunity you have.

Also, assume any policy that has not yet renewed as being garbage. Agents tend to find a way to write policies when they need cash. Recent policies probably have a certain amount of higher risk than rated type of clients in them.

Figure you will have to re-underwrite the book. You should anyway, but this will be a necessity. It will cause some policies to drop, but whats left should be solid.

Odds are, you can't buy it after the bankruptcy. Most P&C contracts have a clause about immediate termination upon filing for bankruptcy. They wouldn't be his to sell. Not all contracts have this, and you may be able to negotiate with the carriers, but then you are also negotiating with the bankruptcy court as well.

Dan
 
Make the deal contingent on the carriers transferring the policies and like always, have a reserve or clawback for abnormally high loss of insureds.

Unless you plan on rolling them to another carrier, it is a plus for the current companies. They get rid of the uncertainty of a bankrupt agency and hopefully the insureds stay put.

That the reaction I would expect from th carriers, they want the business to stick on the books and will be happy if you can stabalize the agency.
 
Back
Top