APN 109-Company Takeovers

Question 1

Describe the conflicts of interest involved in takeovers? (4)

Answer 1

• Takeover regulations make it clear the board of directors and advisers have to act in the best interest of shareholders

• In this context the statutory actuary who is also a director must consider carefully conflict bearing in mind their duties to the policyholder

• The financial advisory needs to be mindful of the conflicts of interests. This may require a independent actuary to provide a formal independent valuation of the company.

• Should there be a conflict of interest the actuary should seek advice from a professional body

Question 2

Describe Requirements if an actuary involved in a takeover lacks experience? (3)

Answer 2

• If an actuary has a lack of experience with takeovers thy should seek co-operation and guidance of actuaries that do have

• Firms that wish to provide advice regarding takeovers needs to ensure that there is at least one person with good takeover regulation knowledge

• A takeover may involve policyholder reasonable expectations which are of an unusual nature. In this case an external actuarial advisor would be required to assist the HAF

Question 3

Outline the discloure requirement of a takeover? (7)

Answer 3

• In accordance with takeover regulation actuaries can be identified as a source of advice

• Report on information in terms of methods and data such that shareholders can see the extent to which value can be sensitive to various assumptions

• Legal advisors are asked to verify sources of information to ensure quality

• Disclose of profit forecast requirements in accordance with takeover regulation

• The impact on SCR will also be an important consideration

• Shareholder needs to be given enough information such that they are aware of the vulnerabilities to which the valuation is subject

• In dealing with an agreed merger it may be necessary to produce actuarial valuation which is disclosed to shareholders (using assumptions which should be consistent)

Question 4

List the information required in a formal opinion regarding the takeover? (9)

Answer 4

• Name of party instructing the actuary

• Terms of reference

• Statement of data used

• Statement that valuation has been made assuming the continuation of current management

• Statement of principle bases assumptions

• Statement indicating that actuary believes that assumptions are reasonable

• Statement describing allowance for tax and solvency capital

• A statement of resulting value i.e. three components of appraisal value

• A statement concerning key assumptions, variations in which would result in a significant change in value