UNDERSTANDING INSURANCE OPTIONS For start-up Hedge Funds Tailor made advice
JLT: Understanding insurance options for start-up Hedge Funds INSURANCE DOESN T HAVE TO BE CONFUSING OR TIME CONSUMING As Hedge Funds become an increasingly popular investment choice and increased regulation seems inevitable, Hedge Fund Managers need to have a comprehensive risk management strategy. Structuring, servicing and managing tailor made insurance products for the hedge fund investment space is one of our core areas of expertise. We re one of the very few brokers to provide inhouse insurance contracts specifically designed to respond to the liability issues faced by managers and directors of Hedge Funds and their funds themselves. But with so many insurance products available, which ones should you buy? We understand this is difficult to navigate, so this guide is designed to take you through the various types of insurance you and your hedge fund will need. THERE ARE THREE MAIN CATEGORIES OF INSURANCE THAT A START-UP MANAGER SHOULD CONSIDER 1. Financial Risks Insurance 2. General Insurance 3. Employee Benefits Insurance
www.jltgroup.com ASK YOURSELF... What cover do you need? Why do you need it? What is covered? When do you need it? FINANCIAL RISKS INSURANCE What cover do you need? Directors and Officers Liability Insurance Professional Indemnity Fund and General Partner Corporate Liability Insurance Employee Dishonesty and Third Party Computer Crime ERISA Fiduciary Liability and Dishonesty Bond * if applicable Why do you need it? Actions are brought against your directors and officers relating to the management of the business Claims are brought against the firm arising out of the provision of professional services Fund corporate liability risks, fund regulatory risks Your business suffers financial loss as a result of crime such as embezzlement, theft, forgery Protects the participants and beneficiaries from dishonest acts of a fiduciary who handles the plan assets and is mandatory What is covered? Defence costs and compensatory awards in the event that actions are bought against your directors and/ or officers Legal costs and compensatory awards in the event that actions are brought against your firm When do you need it? Year 1 Year 1/2 Protects the fund as per the D&O Year 1 above but is a separate ring-fenced limit ensuring the "manager" cannot erode the entire limit Financial losses to the business Year 2 The bond guarantees you will be able to pay any losses up to the face amount of the bond. Coverage limit that is equal to no less than 10% of the amount of plan funds handled, subject to a $500,000 maximum bond amount. Higher limits can be purchased. Year 1*
JLT: Understanding insurance options for start-up Hedge Funds GENERAL INSURANCE What cover do you need? Contents, Tenant s Improvement and Decoration Computers/IT Public Liability Why do you need it? Office contents are damaged or destroyed by insured perils (such as fire, theft, accidental damage, storm etc.) Your computers, IT equipment or IT records are damaged or lost (by an Insured Peril) A claim is brought against you for loss to property to persons for which you are legally liable What is covered? Office contents, tenant's improvements and general fixtures and fittings of your office Replacement or reinstatement. Extension to include computer breakdown, reinstatement of data and extra expenditure arising from loss When do you need it? Year 1 Year 1 Legal costs, expenses and damages Year 1 Employment Practices Liability/Employers Liability Insurance An employee brings a claim against the company after being injured at work (classic 'slip and trip' insurance) - this is required by law Legal costs, expenses and damages Year 1 Kidnap & Ransom Risk of kidnap of employees Access to specialist resolution services and ransom payments Year 2 Cyber A claim is brought against you for loss of customer data for which you are legally liable to protect and/or your business is interrupted as a result of network intrusion Information security and privacy liability, legal costs. Optional extras including loss of revenues, public relations costs and reputational damage Year 1/2 EMPLOYEE BENEFIT COVER What cover do you need? Keyman Insurance Why do you need it? A member of staff who is key to the running of the business is incapacitated through death or serious illness What is covered? Costs of sourcing a suitable replacement Group Life Insurance Employee dies whilst in service Proceeds to supporting employee s dependants Medical and Dental Group Travel Partners, Employees or their dependents require medical or dental treatment whilst in service Partners, Employees and their dependents require cover whilst traveling New and pre-existing conditions in UK and abroad Business travel with the UK and abroad (can be extended to include personal travel) When do you need it? Year 2 Year 1/2 Year 1/2 Year 1/2
www.jltgroup.com INFORMATION WE WILL NEED TO PROVIDE QUOTES FINANCIAL RISKS INSURANCE Assets under management Fund prospectuses Manager due diligence questionnaire Structure chart Investor base GENERAL INSURANCE Number of partners and employees Summary of assets to cover Property replacement values Business interruption cost assessment EMPLOYEE BENEFIT INSURANCE Name and Date of Birth of those to be insured Types of cover required Excesses to apply the different covers Medical history
JLT: Understanding insurance options for start-up Hedge Funds WHAT WILL IT COST A TYPICAL NEW HEDGE FUND? Cover type Limits Approx cost: Financial Risks Insurance $5m $20,000 $35,000 Employee Benefits Various 5,000 General Insurance Various 1,200 ASSUMPTIONS Investment Manager: UK FCA regulated LLP AUM: $100m, non-leveraged, equity long/short Staff: Four employees, two partners Office: London based. FACTORS AFFECTING PRICING AUM Investment strategy Investor profile Staff numbers Manager domicile
www.jltgroup.com HOW MUCH COVER DO YOUR PEERS BUY? Limit Benchmarking for a Range of AUM Categories 16 14 12 Professional Indemnity Directors & Officers 10 USDm Limit 8 6 4 2 0 USD 0-5m USD 50-250m USD 250-500m USD 500m-1bn USD 1-2bn USD 2-3bn USD 3-4bn Assets Under Management There are numerous factors affecting the limits firms typically purchase, AUM being just one. The above graph is purely illustrative and our team is highly experienced in analysing these factors to provide the best advice tailored to you.
JLT: Understanding insurance options for start-up Hedge Funds OUR PEOPLE If you would like to know more, Alex and his team are more than happy to take you through your options via phone or we can arrange a personal meeting to discuss your individual circumstances. ALEX BURTON BROWN Head of Hedge Fund Practice Direct Dial: +44 (0)20 7528 4084 alex_burtonbrown@jltgroup.com Alex leads the Hedge Fund Practice at JLT Specialty and has a deep understanding of the insurance needs of the asset and alternative asset management sector. His strong market relationships mean he is able to leverage very competitive premiums and broad policy wordings in the industry for our clients. Hedge funds often present complex legal and geographical structures and can face risks from the actions of clients, regulators, employees and other third parties. JLT Specialty is widely considered a market leader in helping navigate clients through these sector issues. Our clients range from some of the largest Hedge Funds in Europe to newly formed start-ups so we are ideally placed to help firms with their insurance needs whether large or small, from the very beginning. Alex Burton Brown
www.jltgroup.com ROGER MAXTED Claims Advocate Direct Dial: +44 (0)207528 4064 roger_maxted@jltgroup.com Roger is a leading claims advocate specialising in Financial Institutions and has extensive experience solving and managing complex claims. He will advise on strategy for negotiation with insurers, analyse potential outcomes and liaise with insurers to achieve the best outcome for you. PAUL TOWLER Head of Financial Institutions Direct Dial: +44 (0)20 7558 3327 paul_towler@jltgroup.com Over the last 25 years Paul has built an outstanding reputation as one of London s most respected Financial Institution figures. He is the author of a number of policies used as industry standard and is also an Associate of the Chartered Insurance Institute. MARK COSTELLO General Insurance Direct Dial: +44 1512 430 298 mark.costello@thistleinsurance.co.uk Mark has extensive knowledge of the insurance market and is supported by a team with a wide access to all insurance markets within the JLT Group. He is used to structuring client programmes carefully to achieve their objectives and manage their ongoing risk needs. MARIA GOODWIN Employee Benefits Direct Dial: +44 (0)20 7528 4934 maria_goodwin@thistleinsurance.co.uk Maria has over 20 years experience within the financial services industry building and developing relationships with new and existing clients in order to ascertain where we can add value. She is adept at understanding the needs of a business and proposing solutions that enable clients to achieve their objectives.
JLT: Understanding insurance options for start-up Hedge Funds WHY JLT? 25 9,000+ 40 % Headquartered in London with offices in 25 locations in the UK More than 9,000 employees with a network spanning 135 countries Owned by Jardine Matheson and listed on LSE (FTSE250) JlT 24% 25% aon 24 % 100 + Willis 20% 31% Marsh Delivers 7bn premium into the market; one of the largest brokers in terms of direct premium into Lloyd s In 2013, JLT Specialty provided services to 24% of the FT Global 500 world s largest companies JLT Specialty s financial risks division has a team of 100+ individuals, including senior people dedicated to financial institutions and claims
www.jltgroup.com ABOUT JLT JLT Specialty Limited is a member of the Jardine Lloyd Thompson Group of companies. Jardine Lloyd Thompson Group plc is quoted on the FTSE250 index of the London Stock exchange and is one of the world s largest providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services. robust often unique solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. Our Financial lines clients include many of the world s leading hedge funds, asset managers, stock exchanges, financial institutions, and fund managers. Our knowledge enables us to provide the technical advice these companies need and we use our experience and market relationships to develop new products and provide competitive solutions. JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies. Our success comes from focusing on sectors where we know we can make the greatest difference using insight, intelligence and imagination to provide expert advice and ABOUT THISTLE Thistle Commercial Risks is a trading style of Thistle Insurance Services, which is part of the Jardine Lloyd Thompson Group (JLT). As part of an independent business, we are able to operate with autonomy and flexibility. We have the scale to provide solutions to the complex demands of the world s leading companies and to deliver global servicing whilst recognising that the needs of each of our clients are unique. By developing highly specialised services, we provide our clients with a depth of expertise and experience. However we also know our key strength lies in the people that we employ, which is reflected in the dedication, service and support they provide to all our customers. What We Do At Thistle Commercial Risks, we aim to go beyond standard, with the bespoke advice, and the personalised service we are able to provide offer to our clients. This, assisted with flexibility, strong market presence and security within this ever-changing world, is, we believe, a winning combination that will lead your business to success. What We Can Offer You We pride ourselves in delivering a traditional broker service, by providing face to face contact where required to all our clients. We tailor your cover to your needs using products from leading specialist insurers. We give you peace of mind, leaving you to do what you really want to do, namely running your business.
CONTACT Alex Burton Brown Head of Hedge Fund Practice Direct Dial: +44 (0)20 7528 4084 alex_burtonbrown@jltgroup.com Alex Burton Brown Head of Hedge Fund Practice Direct Dial: +44 (0)20 7528 4084 alex_burtonbrown@jltgroup.com JLT Specialty Limited The St Botolph Building, 138 Houndsditch, London EC3A 7AW Tel +44 (0)20 7528 4000 Fax +44 (0)20 7528 4500 www.jltgroup.com Lloyd s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 01536540. VAT No. 244 2321 96. July 2014 268502 Thistle Commercial Risks Southgate House Southgate Street Gloucester GL1 1UB Tel +44 (0)800 652 4990 www.jltgroup.com Thistle Commercial Risks is a trading style of Thistle Insurance Services Limited. Lloyd's Broker. Authorised and Regulated by the Financial Conduct Authority. A JLT Group Company. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 00338645. VAT No. 244 2321 96