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💵 '''Proof of funds letter''' is a document provided by a prospective buyer — or its financing source — to demonstrate that the financial resources necessary to complete an [[Definition:Acquisition | acquisition]] are available and committed. In insurance M&A, where [[Definition:Regulatory approval | regulatory approvals]] hinge on the acquirer's financial strength and ability to maintain the target's [[Definition:Solvency | solvency capital]] post-closing, a credible proof of funds letter serves double duty: it satisfies the seller that the buyer can close, and it supports the regulatory submission to insurance supervisors who must approve the change of control.

🏛️ The letter typically originates from a bank, [[Definition:Private equity sponsor | private equity fund]], or the buyer's treasury function and confirms either that liquid funds are on deposit or that a committed financing facility is in place. For sponsor-backed insurance deals, it may take the form of an equity commitment letter from the fund, often accompanied by a debt commitment letter from lending banks if [[Definition:Leverage | leverage]] is part of the capital structure. Insurance regulators — from the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]]-coordinated state review process in the US, to the [[Definition:Prudential Regulation Authority (PRA) | PRA]] in the UK, to the [[Definition:China Banking and Insurance Regulatory Commission (CBIRC) | CBIRC]] in China — routinely require evidence of funding adequacy as part of their Form A or equivalent change-of-control filings. A conditional or heavily caveated letter will draw immediate skepticism from both seller and regulator.

🔑 Timing and specificity matter enormously. Sellers conducting a competitive [[Definition:Auction process | auction]] often require proof of funds alongside binding bids, using the quality of the letter as a differentiator between otherwise comparable offers. A buyer that can demonstrate unconditional, fully committed funding gains a material advantage over a rival whose financing remains subject to additional approvals or market conditions. In practice, the proof of funds letter also interacts with the [[Definition:Process letter | process letter]] requirements and [[Definition:Share purchase agreement (SPA) | SPA]] conditionality: a buyer with confirmed funds can offer fewer [[Definition:Condition precedent | conditions precedent]], which makes its bid more attractive to sellers seeking deal certainty — a particularly prized attribute in insurance transactions where the path to regulatory approval can already introduce months of uncertainty.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Equity commitment letter]]
* [[Definition:Debt commitment letter]]
* [[Definition:Regulatory approval]]
* [[Definition:Condition precedent]]
* [[Definition:Auction process]]
* [[Definition:Private equity sponsor]]
{{Div col end}}

Definition:Proof of funds letter - Revision history

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