Ensuring Operational Stability Post-Spin-Off: A Conversation with Daniel Halter from Sandoz

Ensuring Operational Stability Post-Spin-Off: A Conversation with Daniel Halter from Sandoz
December 10, 2024 9 mins

Ensuring Operational Stability Post-Spin-Off: A Conversation with Daniel Halter from Sandoz

Ensuring Operational Stability Post-Spin-Off: A Conversation with Daniel Halter

Daniel Halter, Director Global Insurance at Sandoz, discusses how smart risk and insurance management supported the Sandoz core mission to provide affordable, off-patent medicines to patients who need them most with Ana Serdarevic, Head of Aon’s Transaction Advisory Services for DACH.

Key Takeaways
  1. Prioritizing risk management — which includes establishing compliant frameworks and procedures for risk financing and insurance during a carve-out — is crucial.
  2. The split from Novartis presented significant challenges, requiring the untangling of integrated processes and frequent adjustments to the insurance risk setup for the new independent entity.
  3. Effective communication among internal teams and insurers, including introducing Sandoz to over 80 underwriters and working closely with Novartis’ insurance team, helped ensure a smooth transition.

On October 4th, 2023, Sandoz formally separated from Novartis and began trading on the Swiss Stock Exchange. This strategic decision enabled Sandoz to focus fully on its purpose — pioneering access for patients — by consistently broadening its offering of affordable, high-quality biosimilars and generics. The separation presented significant challenges, requiring the untangling of integrated processes once shared with Novartis and frequent adjustments to the insurance risk setup for the new independent entity.

Daniel Halter became director of global insurance at Sandoz in April 2023. In this discussion, he covers the vital role of risk and insurance management during Sandoz’s spin-off from Novartis, including strategic considerations, challenges, and solutions for a smooth transition and operational stability. The interview also provides valuable insights into how Sandoz is positioning itself for future growth and innovation in the biosimilars and generics market.

 Company  Headquarters  Traded As  Total Assets
 Founded in 2022, Sandoz Group AG has a brand history dating back to 1886.  Basel, Switzerland  SIX: SDZ, SMI MID component  $19.430 billion (2023)

Ana Serdarevic: Can you describe your role and overall experience with the carve-out transaction process?

Daniel Halter: I joined Sandoz to set up compliant risk financing and insurance structures and address specific risk areas. Upon assuming my new role at Sandoz, Aon had already been engaged for several months on the spin-off under Ana Serdarevic’s leadership. The project was set up in a professional and thorough manner, enabling me to quickly understand the tasks and their timelines. My main role is to protect Sandoz’s new balance sheet post-spin-off. This is unlike my previous work, where I adjusted risk structures for private equity companies preparing for the stock exchange and separated fully integrated processes.

Ana Serdarevic: Were there any specific challenges or complexities you faced during the transaction? 

Daniel Halter: Sandoz was a fully integrated division of Novartis, with many combined functions that needed to be established for the new company. It’s a moving process, and adjustments are frequent. Therefore, the intended insurance risk setup needs to be adjusted accordingly.

Ana Serdarevic: How did you handle the transition of insurance coverage for the carved-out entity?

Daniel Halter: Initially, we assessed the current insurance policies in place at Sandoz and within the wider group. We compared these policies against identified risks, such as those noted in the IPO prospectus or elaborated internally under our Enterprise Risk Management (ERM) process. Aon assisted by gathering local insurance data from our subsidiaries, including mandatory coverage and best practices. Following our due diligence, we requested quotes for various insurance contracts from the market. A risk financing analysis performed by Aon enabled us to determine the optimal limits and deductible levels based on Sandoz's risk profile and financial status.

Ana Serdarevic: Were there any gaps in coverage during the transition period?

Daniel Halter: Previously, certain risk categories were not covered by insurance, and a captive insurer was used for one line of business. One of the tasks involved isolating Sandoz's exposure within the captive. The strategy for this separation was to replicate existing insurance policies as needed and acquire additional coverage to address identified risks, ensuring that the stand-alone company's risk exposure was properly aligned.

Ana Serdarevic: How did you assess and manage the potential liabilities associated with the carved-out entity? 

Daniel Halter: Larger pharmaceutical companies often use risk financing tools, like captives, to cover liability risks. Traditional insurers are usually hesitant to provide significant coverage, especially to new companies. We experienced a lot of willingness to work with Sandoz, but needed to use a variety of different insurers and markets for our insurance program. For Sandoz, gaining insurer trust was crucial, so we involved our senior management in the process and conducted several sessions to show how we manage risks daily. Concerning cyber risks, presenting the stand-alone IT setup and agreements in the transitional service agreements (TSAs) to the insurance market was important.

Ana Serdarevic: What were the financial implications of the carve-out on your corporate insurance costs?

Daniel Halter: As part of Novartis, Sandoz did not bear all insurance costs. After Spin, without a captive insurer, the organization had to cover the premium and insurance premium tax. While we generally secured favorable premium-to-coverage ratios, the total cost of risk influences the margin and insurance premium. We are working toward a thorough understanding of these costs.

Ana Serdarevic: What level of communication did you maintain with insurers during the transaction?

Daniel Halter: Sandoz, a new insurance market account, had previously limited risk information for some business lines, particularly property damage and business interruption (PDBI). We chose to have Aon’s risk engineers visit our top three sites to help evaluate the risks and prepare a risk engineer report, which is distinctive for the Swiss insurance market since these evaluations are usually conducted by insurance companies. During a presentation with over 80 underwriters from all insurance lines and representatives from various insurers, we, alongside our senior team, showcased the independent Sandoz project and its risks. Presentations from finance, operations, legal and supply chain provided firsthand insights and allowed for questions. Subsequent individual discussions with insurers, mostly via Aon brokers, further clarified the company.

Ana Serdarevic: Did you encounter any regulatory or compliance issues related to insurance during the carve-out?

Daniel Halter: Together with Aon and the lead insurers, we adopted a country and business line approach. We assessed where a local policy was meaningful due to compliance reasons or risk exposure. This process included evaluating stand-alone policies, freedom of service options and protection through financial interest clauses (FINC). To meet all legal insurance obligations for both the parent company and the carved-out entity, the separation agreement between the parent company and Sandoz defined liabilities and protections. In most countries, we established individual insurance coverage for Sandoz, while the parent company retained its own.

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By designing tailored insurance solutions and fostering seamless collaboration across teams, it is important to help organizations like Sandoz navigate the complexities of separation while setting the foundation for long-term growth and resilience.

Ana Serdarevic
Ana Serdarevic
Head of M&A Transaction Advisory Services DACH at Aon
Ana Serdarevic: What lessons did you learn from this experience that you would apply to future transactions?

Daniel Halter: A lot around communication and a strong understanding of risk and business. Open communication within the organization is vital, detailing the process steps and outcomes and offering necessary training. Sandoz has undergone significant changes throughout this process and continues to evolve. Contacts had to be identified and instructed; and often, these individuals had no prior involvement with insurance matters.

Drawing on my previous successes, I am a firm advocate for the close collaboration between ERM, risk mitigation and risk financing to thoroughly understand risks and devise appropriate management and financing strategies. Insurers share similar interests with the organization: comprehending risks, reducing claims and cutting costs. With precise data and preventive tools, insurers and brokers can actively support the business in mitigating risks and seizing opportunities — regard them as long-term partners, not merely suppliers. For instance, we are currently developing a new biosimilars production facility in Slovenia, where the insurer's risk engineer participates in designing the fire protection system.

Ana Serdarevic: What advice would you give to other companies considering a similar carve-out transaction?

Daniel Halter: Begin by organizing all relevant factors: risks, existing contracts, necessary data and information for setting up coverage, and identifying which internal and external stakeholders can best assist in gathering this information. I strongly recommend collaborating with an insurance broker for such a project. Even if you plan to eventually internalize some functions, a reliable partner is invaluable. For instance, we unexpectedly needed to address coverage gaps through the reinsurance market and less common insurance markets; a broker can facilitate access to these. In over 30 M&A transactions, this was the first time I had such a dedicated project set up on the broker’s side, and it proved to be a significant asset. Lastly, remain adaptable, as changes or adjustments are common.

Quote icon

With precise data and preventive tools, insurers and brokers can actively support the business in mitigating risks and seizing opportunities — regard them as long-term partners, not merely suppliers.

Daniel Halter
Daniel Halter
Director Global Insurance at Sandoz

Recommendations for a Smooth Transition

Daniel Halter: During a transaction, early preparation is key. It’s advisable to maintain open communication within the organization, clearly explain the steps and results and offer training where necessary. It is also important to collaborate closely with insurers and brokers to understand risks, reduce claims and costs and gain opportunities. Staying flexible and anticipating potential questions and tasks from the organization is crucial for a successful carve-out.

Ana Serdarevic: Aon has a unique carve-out proposition and can provide innovative solutions using insurance and alternative capital to address gearing constraints and unlock equity upsides. Staffed with a deep bench of specialists capable of deploying multiple “clean teams” in auction processes, Aon has handled over 100 carve-out mandates in EMEA last year alone. Our fully dedicated and multidisciplinary carve-out team supports both buy and sell sides with issues related to risk/insurance, human capital, cyber, intellectual property, credit and litigation.

Thought Leaders
  • Ana Serdarevic
    Ana Serdarevic
    Head of M&A Transaction Advisory Services DACH at Aon
  • Daniel Halter
    Daniel Halter
    Director Global Insurance at Sandoz

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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