Insurance due diligence report Draft
Acquisition by Ardenwood Capital Partners LLPM&A Advisory Practice
Critical gaps in product recall, cyber (£5M — grossly inadequate), excess/umbrella. No standalone programme exists. Group placement terminates at close.
Coverage gapsOne material open claim (£2.1M aerospace recall) with 2–4× adverse development risk. 5-year loss history not available — cannot verify frequency or severity trends.
Open claimGroup allocation (£3.9M) obscures true standalone cost. IPT, broker fees, retained losses likely under-expensed. EBITDA adjustment required: £0.6M–£2.1M p.a.
EBITDA scenariosComplete programme replacement required. Retroactive dates at risk on claims-made lines. Local admitted compliance unconfirmed (Germany, Poland, Mexico). No transition planning commenced.
Current programmeProduct recall (catastrophic: £10M–£50M+). Cyber gap (£10M–£20M uninsured). Mexican site environmental liability unquantified. IBNR £2.85M–£9.7M on long-tail lines.
IBNR by lineFinding1
Red
All 8+ lines embedded in seller’s group Gallagher placement. Every policy terminates on 80% change of control. Full standalone programme across 4 jurisdictions required Day 1. Lead time: 8–12 weeks minimum.
Current programmeFinding2
Red
Safety-critical aerospace and automotive supply. Active recall claim (£2.1M reserved) confirms real risk. First-party recall costs excluded from standard PL policies. Rec. limit: £15M–£25M.
Gap G-1Finding3
Red
D&O, PI, Cyber, EIL retroactive dates held at group level. Standalone policies at close will carry inception-date retros, creating an uninsured gap for all pre-close wrongful acts.
SPA recommendation 3Finding4
Red
Aerospace PL claims develop 2–4× from initial reserve. Allocation unaddressed in SPA. Change-of-control provisions may jeopardise coverage continuation post-close.
Open claimFinding5
Amber
Current P&L reflects group-allocated premiums (~£3.45M). True all-in cost of risk (premiums + retained losses + IPT + fees + additional covers) estimated £4.2M–£5.2M in Year 1.
EBITDA scenarios| Measure | Low | Mid | High | Range on a common scale |
|---|---|---|---|---|
| Recurring annual EBITDA adj. | £0.3M | £0.8M | £1.3M | |
| EV impact of recurring adj. (8.5×) | £2.6M | £6.8M | £11.1M | |
| One-off transaction costs | £1.8M | £2.8M | £3.8M | |
| Total estimated financial impact1.7% – 5.9% of £420M EV (mid 3.8%) | £7.3M | £15.9M | £24.6M |
| Scenario | Adjusted EBITDA on a scale | Adj. EBITDA | Implied EV | EBITDA adj. |
|---|---|---|---|---|
| Reported (No adj.) | £49.4M | £420.0M | — | |
| Low adj. | £48.8M | £414.9M | −£0.6M | |
| Mid adj. (Base case) | £48.0M | £408.5M | −£1.4M | |
| High adj. | £47.3M | £402.1M | −£2.1M | |
| Max EV reduction | £17.9M |
| Item | Low | Mid | High | Range on a common scale |
|---|---|---|---|---|
| D&O run-off tail (6–7yr) | £350K | £450K | £550K | |
| W&I insurance (~£105M limit) | £1,050K | £1,575K | £2,100K | |
| Stub-period standalone cover | — | £75K | £150K | |
| Collateral / LOC replacement | — | £250K | £500K | |
| Retro date / ERP protection | £75K | £138K | £200K | |
| Transaction broker fees | £150K | £200K | £250K | |
| IPT on transaction policies | £60K | £80K | £100K | |
| Total | £1,735K | ~£2,768K | £3,850K |
Where no low estimate is given, the range is drawn from £0.
SPA escrow recommended: £3M–£5M holdback for PL claim adverse development, Mexican environmental remediation, and IBNR crystallisation. Release upon claim resolution or 24–36 months post-close.
| # | Line | Terminates at close | Standalone est. | Range on a common scale | Timeline | Priority |
|---|---|---|---|---|---|---|
| 1 | Property & BI | Yes | £850K–£1,050K | 8–12 wks | Critical | |
| 2 | Combined Liability (PL/Products/EL) | Yes | £620K–£780K | 8–12 wks | Critical | |
| 3 | D&O Liability | Yes | £180K–£240K | 6–8 wks | Critical | |
| 4 | Cyber (£5M → £15–20M) | Yes | £160K–£220K | 6–8 wks | High | |
| 5 | Marine Cargo | Yes | £90K–£130K | 4–6 wks | Medium | |
| 6 | Motor Fleet | Yes | £110K–£150K | 4–6 wks | Medium | |
| 7 | PI — Design Liability | Yes | £140K–£200K | 6–8 wks | High | |
| 8 | Environmental Impairment (EIL) | Yes | £180K–£260K | 8–12 wks | Critical | |
| Total | £2,330K–£3,030K | |||||
| All-in cost (incl. SIRs, tail, fees) | £3,100K–£3,800K | |||||
G-1Critical
No standalone recall policy identified. Standard PL excludes withdrawal, inspection, rework, replacement, customer BI. Single-event exposure: £10M–£50M+ (aerospace). Rec. limit: £15M–£25M. Annual premium: £150K–£300K.
G-2Critical
£5M confirmed limit materially below benchmark for £248M-revenue OT/ICS manufacturer across 6 sites. Ransomware event could exhaust first-party BI alone. Uninsured gap: £10M–£20M.
G-3High
No umbrella/excess mentioned. Safety-critical aerospace and automotive supply demands robust excess tower. Benchmark: £25M–£50M xs primary CGL/products. Annual premium: £200K–£350K.
G-6High
No Mexican WC/EL policy identified. Statutory compliance unconfirmed. Non-compliance with IMSS risk-premium obligations creates regulatory liability.
G-7High
Post-close, admitted policies required in each jurisdiction for compulsory lines. Group master lapsing without local replacements = bare periods of statutory non-compliance.
G-4Medium
Not listed. Recommended given likely concentrated OEM customer base and automotive sector cyclicality. Assess if top customers exceed 20% of revenue.
TPC-PL-001
£2,100,000Current reserve
Risk: Change-of-control clause may jeopardise coverage continuation. EASA/FAA regulatory action could expand recall scope. OEM consequential-loss recovery likely.
| Line of business | Frequency trend | Severity trend | Key driver |
|---|---|---|---|
| Products Liability | ↑ Increasing | ↑ Increasing | Aerospace regulatory; recall risk |
| Cyber | ↑ Increasing | ↑ Increasing | OT/ICS; supply-chain attacks |
| Property & BI | Stable | ↑ Increasing | Site concentration; BI values rising |
| Environmental | Low frequency | ↑ Potentially high | Mexican site regulatory risk |
| Employers’ Liability | Stable | Stable | Mature H&S; NIHL/HAVS latency |
| Motor Fleet | Stable | Moderate increase | UK claims inflation ~8–10% p.a. |
| Line | Range on a common scale | Low | High | Concern |
|---|---|---|---|---|
| Products Liability (Aerospace) | £1.5M | £4.0M | Critical | |
| Environmental (Mexico) | £0.5M | £3.0M | Critical | |
| Employers’ Liability | £0.5M | £1.5M | High | |
| PI (Design Liability) | £0.3M | £1.0M | Medium | |
| Motor Fleet | £0.05M | £0.2M | Low | |
| Total IBNR estimate | £2.85M | £9.7M |
| # | Issue | SPA clause recommendation | Priority |
|---|---|---|---|
| 1 | Insurance maintenance covenant | Seller warrants maintenance of all existing coverage through close without reduction or lapse | Critical |
| 2 | D&O run-off tail | Seller obligation to bind 6–7 year D&O run-off at or before close; cost responsibility specified (est. £350K–£550K) | Critical |
| 3 | Claims-made tail / run-off | Seller to procure tail on PI, Cyber, EIL with retroactive dates preserved; minimum 6-year survival | Critical |
| 4 | Aerospace recall claim indemnity | Specific seller indemnity for open £2.1M claim incl. adverse development; uncapped or ≥£10M; 7-year survival | Critical |
| 5 | Environmental indemnity — Mexico | Seller indemnity for pre-close contamination (known & unknown); 10-year survival; cap ≥£5M–£15M; consider escrow | Critical |
| 6 | Escrow / holdback | Escrow of £3M–£5M for PL claim adverse dev., Mexican environmental remediation, IBNR crystallisation. Release: claim resolution or 24–36 months post-close | Critical |
| 7 | W&I policy interaction | Ensure W&I dovetails with SPA warranties; specific SPA indemnities excluded from W&I cap so seller retains direct liability | Critical |
| 8 | CP — standalone programme | Condition precedent requiring standalone programme bound before close to buyer’s reasonable satisfaction | High |
Obtain all group policy schedules, wordings, endorsements & retroactive dates from Gallagher
Owner: Marsh IDD / Seller / GallagherStatus: Not started
Deadline: 5 Nov 2026
Obtain 5-year loss runs (all lines, accident-year basis, valued ≤90 days)
Owner: Marsh IDD / GallagherStatus: Not started
Deadline: 5 Nov 2026
Review and amend draft SPA insurance clauses per Section 4.7 recommendations (15 items)
Owner: Legal counsel / MarshStatus: Not started
Deadline: 12 Nov 2026
Commission standalone programme marketing — 8+ lines, 4 jurisdictions; engage Marsh placement
Owner: Marsh placement / ArdenwoodStatus: Not started — Commence immediately
Deadline: Immediate
Commission Phase I ESA for Mexican manufacturing site
Owner: Ardenwood / environmental consultant6–8 week turnaround
Deadline: Immediate
Confirm retroactive dates on claims-made policies; negotiate tail/ERP provisions in SPA
Owner: Marsh / Legal counselStatus: Not started
Deadline: 12 Nov 2026
Map top 10 customer contract insurance requirements to standalone programme design
Owner: Marsh IDD / ArdenwoodStatus: Not started
Deadline: 19 Nov 2026
Commission actuarial IBNR analysis (subject to receipt of loss data)
Owner: Ardenwood / appointed actuaryStatus: Blocked — awaiting loss runs
Deadline: Upon data receipt
| Priority | Count | Key themes |
|---|---|---|
| Critical | 9 | Data gaps; programme replacement; product recall; cyber; retro dates; open PL claim; Mexico env.; D&O tail; IBNR |
| High / Amber | 13 | Excess liability; local compliance; EBITDA adjustment; contractual mapping; SPA; W&I; collateral; stub period |
| Medium / Low | 9 | Trade credit; supply chain BI; SIR sensitivity; leakage; captive; IP; pandemic; ESG |
Data availability note: This report is based solely on the Deal Intake form dated 29 October 2026. No policy schedules, loss runs, audited accounts, or SPA drafts were reviewed. All financial figures are analyst estimates [E] from sector benchmarking. Report must be re-validated upon receipt of underlying documentation. No definitive coverage opinion can be issued until actual policy wordings are reviewed.
This report is based solely on the Deal Intake form dated 29 October 2026. No policy schedules, wordings, loss runs, audited accounts, or draft SPA were reviewed. All quantified findings are analyst estimates [E] derived from sector benchmarking for UK-headquartered precision-manufacturing businesses. This report must be re-validated once underlying documents are provided. No definitive coverage opinion can be issued until actual policy wordings are reviewed. Prepared solely for the use of Ardenwood Capital Partners LLP. Not for reliance by any third party without Marsh’s prior written consent.