Demand for transactional risk insurance across all regions reached an all-time high in 2015 as strategic investors and private equity firms looked to reduce deal risk, according to global insurance broker and risk advisor
Marsh.
The company said its mergers and acquisition professionals placed 450 transactional risk policies globally last year, a 32% increase from 2014. Limits placed increased by 45% to US$11.2 billion, driven mainly by larger deal sizes and more insurance limits being bought per transaction.
Marsh said corporate buyers are catching up with private equity firms in using transactional risk insurance, a trend that is expected to continue.
“Originally used almost exclusively by private equity firms, we have seen a dramatic uplift of corporate buyers using transactional risk insurance to better compete for assets, especially in auction situations,” Marsh said in a recent report.
The leading global broker also said that the transactional risk insurance market continues to expand as existing underwriters increase their capacity and new underwriters enter the space.
According to the Marsh report, the Asia-Pacific region accounted for the largest increase in the demand for transactional risk insurance.
“Asian conglomerates are starting to use transactional risk policies as they expand and invest cross-border into western economies,” the report said.
There was a “significant” uptake in warranty and indemnity insurance and limits placed in Asia, the report added, with larger deals requiring higher limits and a number of private equity firms seeking clean exits from their investments.
In the UK and Europe, the number of insurers providing warranty and indemnity insurance has increased, with four new underwriters in 2015. High levels of competition continue to drive better coverage, pricing, and retentions.
UK insurers have become more comfortable with “nil seller recourse” structures, Marsh noted, and are providing competitive terms for these risks for a wider range of transactions.
Another trend reported by Marsh is the greater awareness and interest in the coverage from Latin America, which is driven by cross-border deals from the UK and the US.
