16 Questions Insurers Ask Hedge Funds During a D&O/E&O Underwriter Meeting

The C-Suite at hedge funds often asks me about the types of questions insurance underwriters are likely to ask before a Directors and Officers (D&O) and Errors and Omissions (E&O) underwriter meeting.

Insurers conduct due diligence on a company before the meeting to assess risk. However, additional questions will likely arise during the meeting that couldn't be fully addressed through the initial underwriting submission, which includes financials and investor presentations, as well as information that is publicly available.

An underwriter meeting is not intended to be an inquisition, where insurers rapidly fire questions at company management for an hour. Instead, it’s an opportunity to humanize the underwriting process, allowing insurers and company executives (CFO, COO, General Counsel, etc.) to meet face-to-face and foster better relationships. Companies provide additional operational detail which may not be readily available in the public domain (such as Form ADV or the website), enabling underwriters to evaluate and better understand the risk. The underwriter meeting is a chance for a company to differentiate its risk and leave underwriters with a positive impression.

The more transparency that insurers have into your business, the better they can price your risk and provide superior policy terms and conditions. Otherwise, by nature insurers will price higher what they don’t know.

An insurance broker should gather questions from insurers in advance to provide ample time for a company to prepare thoughtful responses and clarify any misconceptions about its risk, thus ensuring a positive meeting outcome. Below are 16 commonly asked questions insurers ask hedge funds during an underwriter meeting:

1. Could you provide a general overview of your firm?
2. Have there been any changes to your management team or structure in the past year?
3. Have any new funds or products been launched this year?
4. Are there any plans to acquire or sell any parts of your business?
5. Are there any plans to raise significant capital this year?
6. Are there any plans to expand your international presence?
7. Can you describe your investment due diligence process and overall philosophy?
8. What is your approach to enterprise risk management, and do you have any priorities for the upcoming year?
9. Can you provide an update on any outstanding claims or current litigation?
10. Has the SEC performed an audit on your firm?
11. What valuation policies and procedures do you have in place?
12. Does your firm utilize expert networks?
13. Have there been any changes to your investor base in the past year, and can you provide a breakdown of US and non-US investors?
14. What cybersecurity measures and protocols does your firm have in place?
15. Do you have any employees traveling overseas?
16. Has your firm ever engaged an external compliance consultant for a mock audit?

The questions above are just a glimpse of what insurers typically ask to gauge a company's overall risk. It's important to partner with a skilled insurance broker who can offer guidance and advocacy throughout the underwriting process. An underwriter meeting is the beginning of what should ideally develop into a lasting partnership between a hedge fund and its insurers.

David Turner specializes in delivering comprehensive insurance and risk management solutions for financial institutions.?When not helping companies make better-informed insurance decisions, he can likely be found on a tennis court or enjoying the East Village of NYC where he lives with his wife and two children.