Mitsui Sumitomo Insurance has begun offering an insurance policy that will cover risks associated with merger and acquisition (M&A) deals entered by overseas subsidiaries of Japanese companies.
More and more firms in Japan are undertaking overseas expansion efforts to meet their growth goals due to the persistently low interest rates in their home market. This exposes the firms to various risks, many of which could significantly damage a company’s finances.
The insurance is applicable for transactions worth ¥10 billion (US$91.3 million) and above, reports Nikkei. The amount insured will vary by individual policy, but is typically worth around 20% of the deal’s estimated value. The insurance premium is expected to be between 1% and 5% of the sum insured.
In M&A activities, a buyer is entitled to damages if the seller is found to have misrepresented the target asset. However, the two parties usually have vastly different estimations on the value of the compensation, so insurance will fill the gap.
Mitsui Sumitomo will work with its UK-based subsidiary Amlin to sell the new M&A insurance policy.
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