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📋 '''Working capital statement''' is a financial document prepared in connection with the closing of an insurance [[Definition:Mergers and acquisitions (M&A) | M&A]] transaction, setting out the calculation of the target company's net working capital as of the closing date (or another agreed measurement date) in accordance with the methodology specified in the [[Definition:Share purchase agreement (SPA) | purchase agreement]]. For insurance businesses — whether [[Definition:Insurance carrier | carriers]], [[Definition:Managing general agent (MGA) | MGAs]], [[Definition:Insurance broker | brokers]], or [[Definition:Third-party administrator (TPA) | third-party administrators]] — this statement captures a snapshot of short-term assets and liabilities that are often uniquely complex, encompassing items like [[Definition:Premium | premium]] receivables, [[Definition:Unearned premium reserve | unearned premium reserves]], [[Definition:Reinsurance | reinsurance]] recoverables, [[Definition:Commission | commission]] accruals, and [[Definition:Claims | claims]]-related payables.

📑 Typically, the buyer prepares the initial draft of the working capital statement within a defined period after closing — commonly 60 to 90 days — using the agreed accounting policies, definitions, and line-item inclusions or exclusions set out in the deal documentation. The seller then has a review window during which it can raise objections or propose alternative figures. If the parties cannot resolve disagreements through negotiation, the disputed items are referred to an independent accounting expert — often one of the major accounting firms with insurance sector experience — whose determination is binding. In insurance transactions, the most contentious items tend to involve actuarial judgment calls: the adequacy of [[Definition:Loss reserve | loss reserves]] included in current liabilities, the collectibility of [[Definition:Reinsurance | reinsurance]] recoverables, or the proper treatment of [[Definition:Incurred but not reported (IBNR) | IBNR]] reserves. Sophisticated purchase agreements address these flashpoints by specifying whether reserves are to be evaluated on a carried basis or re-estimated, and whether the seller's or buyer's [[Definition:Actuary | actuarial]] methodology prevails.

🏗️ The quality and precision of the working capital statement directly determines whether a [[Definition:Working capital shortfall adjustment | shortfall adjustment]] or [[Definition:Working capital surplus adjustment | surplus adjustment]] is triggered, making it one of the most commercially significant documents in the post-closing phase. In jurisdictions where insurance companies are subject to regulatory capital requirements — such as the [[Definition:Risk-based capital (RBC) | RBC]] framework in the United States, [[Definition:Solvency II | Solvency II]] in Europe, or [[Definition:China Risk Oriented Solvency System (C-ROSS) | C-ROSS]] in China — the working capital statement must also be prepared with an awareness of how reclassifications between current and non-current items could affect regulatory reporting. A carefully drafted working capital statement, underpinned by clear definitional schedules in the purchase agreement, reduces the likelihood of protracted disputes and helps both parties achieve a clean economic separation of the business.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Working capital true-up]]
* [[Definition:Working capital target]]
* [[Definition:Working capital shortfall adjustment]]
* [[Definition:Working capital surplus adjustment]]
* [[Definition:Completion accounts]]
* [[Definition:Loss reserve]]
{{Div col end}}

Definition:Working capital statement - Revision history

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