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November 14th - 17th, 1999
Tuesday, November 16, 3:30 - 4:45 p.m. "Forming a Captive After a Merger Makes Good Sense"
During this phase of the consolidation, the tough decisions come down to what to keep and what to eliminate. It is likely that if both companies had a captive, they will keep at least one, according to Michael Maglaras, principal, Michael Maglaras & Co., a risk management consulting firm. Speaking at the Ninth World Captive and Alternative Risk Financing Forum Nov. 16, Maglaras said, "When you get a taste for managing your own losses, you never want to go back." That reasoning also has led some health-care businesses to establish a captive as part of a merger process, according to Corbette S. Doyle, chief executive officer, Aon Healthcare Alliance, who also spoke at the session, "Using a Captive in Mergers and Acquisitions--A Healthcare Perspective." Forming a captive after the merger also can make sense because the combined company has a larger pool of losses to fund, Doyle said. The captive can be used to merge multiple alternative risk vehicles and give the new larger entity more flexibility, she said. The captive can be used by the health-care company to cover physicians' capitated risk or to effectively handle a loss portfolio that has been overfunded, she said. At the start of an acquisition, risk managers should evaluate all forms of self-insurance used by the company being purchased. The outstanding liabilities should be reviewed to determine if any are underfunded. It's rare for a risk manager to uncover information during this process that would make or break the deal, but it could affect the purchase price, Doyle said. |
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Using a Captive in Mergers and Acquisitions
When companies merge or are acquired, the new entity often is faced with duplication in the executive suite--two chief executive officers, two chief financial officers and two chief actuaries. They also may be faced with two captive insurance companies.