Definition:Key person term sheet
📄 Key person term sheet is a preliminary document that outlines the proposed terms and conditions under which a named individual — typically a senior underwriter, portfolio manager, or executive — will be designated as a key person within an insurance-related agreement, fund structure, or delegated authority arrangement. It serves as a negotiation framework before the full key person clause is drafted into definitive legal documentation, capturing the essential commercial understanding between the parties regarding the individual's role, obligations, and the consequences of their departure.
🔍 The term sheet typically identifies the key person by name and title, specifies the minimum time commitment expected (often expressed as a percentage of professional working time), defines what constitutes a trigger event — such as resignation, termination for cause, prolonged disability, or failure to maintain the required time commitment — and sets out the remedies available to the other party. In the context of a private equity fund focused on insurance carrier or MGA acquisitions, the term sheet may detail an investment suspension period, the process for appointing a replacement acceptable to limited partners, and any cure periods during which the fund sponsor can resolve the key person gap. For capacity providers granting authority to specialty underwriting teams, the term sheet captures whether the departure of the named underwriter triggers an automatic run-off of the binder or merely a review period. While not legally binding in the way a final agreement is, the term sheet establishes expectations that shape the definitive documentation and reduces the risk of late-stage negotiation breakdowns.
⚖️ Producing a key person term sheet early in the deal or relationship formation process is valuable precisely because it forces difficult conversations before parties become deeply committed. Insurance transactions frequently involve complex multi-party structures — a Lloyd's syndicate backing an MGA, or a consortium of reinsurers supporting a program — where different stakeholders may have different views on which individuals are truly indispensable and what rights should flow from their departure. Addressing these questions at the term sheet stage prevents ambiguity from being buried in boilerplate. In practice, experienced insurance deal professionals treat the key person term sheet as a litmus test for alignment: if the parties cannot agree on who matters and what happens when they leave, deeper structural disagreements almost certainly lie ahead.
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