Fatal fall highlights the role of key person insurance cover
Published 20 July 2018
When China’s HNA Group co-founder and chairman Wang Jian accidentally fell to his death in France on 4 July 2018 the value of its shares and dollar bonds dropped sharply.
Apart from the tragedy of the investment conglomerate losing the leader who had helped make it one of the biggest companies in the world, the timing of Wang’s death is also bad news for the company which has been restructuring after it became unable to service the interest on borrowing costs over the last year. HNA’s Latest annual report showed the group had more than $90 billion in debt and has been selling off assets under pressure from the Chinese Government.
Wang had reputedly led the group’s expansion to becoming the largest shareholder in international giants such as Deutsche Bank and Hilton, as well as assets in aviation, tourism and finance. He was also one of HNA Group’s largest shareholders, with a 15% stake. The group is controlled by a New York-based foundation and a China-based charity that together hold 52% of HNA shares. Wang’s co-founder and chairman Feng Chen also holds a 15% stake.
Gallagher’s Executive General Manager, Advice, Tapel Cafer comments, “An incident like this involving a key employee or business owner can not only disrupt the operation of a business but can erode investor confidence and perception of business value. This is particularly true if this person is someone that the business cannot live without, and Wang has been instrumental to HNA Group’s past success.”
Cafer says that all businesses, whether they are large or small, need to think about the impact of the loss of a key person – or shareholder – due to death, disability or traumatic illness, formulate a strategy and document this formally as part of the business plan.
‘What if’ cover
“A well-structured insurance program can protect a business and its shareholders, enabling the operation to survive by helping maintain cash flow, funding an executive search, realigning shareholdings and reducing debt,” Cafer says.
“This is particularly critical to a business like HNA Group, where the principals are major shareholders and the company is already under financial duress. The relevant policies are key person insurance and buy/sell cover."
While HNA Group has run into strife with its insurance investments, with a plan to create its own insurance arm foundering due to a regulatory crackdown on accessing funding from the company’s own controlling interests, it can be assumed that it would have appropriate insurance for a company structured around a central partnership.
But, Cafer says, surprisingly few businesses have a documented plan or effective insurance program in place and of those that do, many have not updated the policy to match business developments.
“Any arrangement needs to be reviewed regularly to ensure that it keep pace with changes in your business,” Cafer warns.
Don’t wait for disaster to strike
Talk to one of Gallagher’s specialist brokers to for obligation-free advice about protecting your business from the loss of a key person.