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🔎 '''Regulatory due diligence''' is the investigative workstream within an insurance [[Definition:Mergers and acquisitions (M&A) | transaction]] that examines the target's compliance with applicable [[Definition:Insurance regulator | insurance regulatory]] requirements, the status of its [[Definition:Insurance license | licenses]] and authorizations, its supervisory history, and the regulatory implications of the proposed deal for both buyer and target. Given that [[Definition:Insurance carrier | insurance companies]] operate under some of the most intensive supervisory regimes of any financial sector — with requirements spanning [[Definition:Solvency II | solvency]], [[Definition:Conduct risk | conduct]], [[Definition:Anti-money laundering (AML) | anti-money laundering]], and governance — regulatory due diligence often determines whether a transaction can proceed at all, and on what terms.

⚙️ The scope typically encompasses several core areas: verification that the target holds valid licenses in every jurisdiction where it writes or services business; review of all correspondence with supervisory authorities, including any [[Definition:Regulatory action | enforcement actions]], supervisory letters, or remediation plans; assessment of compliance with [[Definition:Risk-based capital (RBC) | capital adequacy]] requirements (whether under [[Definition:Solvency II | Solvency II]], the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]] RBC framework, [[Definition:C-ROSS | C-ROSS]], or other local regimes); analysis of [[Definition:Fit and proper requirements | fit and proper]] approvals for directors and key function holders; and evaluation of the [[Definition:Regulatory change of control approval | change of control approval]] pathway. For targets that operate as [[Definition:Managing general agent (MGA) | MGAs]] or [[Definition:Coverholder | coverholders]], the review extends to [[Definition:Delegated underwriting authority (DUA) | delegated authority]] arrangements and the regulatory status of those agreements in each relevant market. The diligence team — usually comprising specialist insurance regulatory lawyers in each jurisdiction, supplemented by compliance consultants — works from materials in the [[Definition:Virtual data room (VDR) | data room]] and the [[Definition:Q&A log (questions and answers log) | Q&A log]], and may also conduct direct inquiries with regulators where permitted.

💡 Regulatory due diligence findings can reshape a deal's structure, pricing, and risk allocation in fundamental ways. Discovery that a target has been operating without a required license in a given market, or that it faces a pending supervisory investigation into [[Definition:Claims management | claims handling]] practices, can trigger [[Definition:Purchase price reduction | purchase price reductions]], enhanced [[Definition:Indemnity | indemnity]] protections, or even deal termination. In cross-border insurance transactions, the complexity multiplies: an acquirer purchasing an insurer with subsidiaries in the EU, the U.S., and Asia must navigate overlapping and sometimes conflicting regulatory expectations. The findings feed into the [[Definition:Regulatory due diligence report | regulatory due diligence report]] and directly inform the [[Definition:Regulatory approval application | regulatory approval application]] strategy, making this workstream one of the highest-priority threads in any insurance deal process.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Regulatory due diligence report]]
* [[Definition:Due diligence]]
* [[Definition:Regulatory change of control approval]]
* [[Definition:Insurance license]]
* [[Definition:Insurance regulator]]
* [[Definition:Conduct risk]]
{{Div col end}}

Definition:Regulatory due diligence - Revision history

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