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Aon has seen the biggest-ever year for warranty and indemnity (W&I) cover, with aggressive insurers ensuring a buyers’ market.
In a report offering an update on the mergers and acquisitions insurance market, the international brokerage said that business is booming both in Australia and overseas.
“2017 was the largest year for Aon in insurance to date, in Australia and globally, and all indicators predict that 2018 will maintain this momentum,” the report said.
The brokerage saw a 96% growth in the number of Aon transaction liability insurance policies from 2014 to 2017, with US$27.2bn in transaction liability insurance limits placed in 2017.
The report said that new and “increasingly aggressive” insurers are operating in the Australian region. That drove a number of overall market trends in 2017, all of which are client friendly.
“Growth of new insurers means more insurance capital is available than ever before – which in turn means more competition between insurers to win deals and the ability to insure larger deals,” the report said. “More capacity has also meant excess pricing rates have plummeted; primary rates have remained steady albeit certainly at the low end of the range.”
The brokerage saw premium rates decrease in 2017 as the average retention amount as a percentage of purchase price has also dipped by 0.12% over the course of 2017.
“Another sign of a current competitive market is that while average premium rates are decreasing, the policy terms offered by insurers are becoming more favourable,” the report said. “For example, tipping retentions or deductibles were offered and purchased on almost half of Aon deals placed in 2017. These ‘enhanced’ retention options are dropping the average retention lower for 2017 than prior years.”
As cover penetrates the market more extensively, larger deals are being insured, as there exists over US$1bn in insurance capital in the market. The report noted that benchmarking shows that the larger the deal, the lower percentage of limit insured, and the fact that more $1bn deals are being insured highlights that programs of over $100m are regularly being structured.
“As a result, the average amount of insurance per deal underwritten by the market increased from circa $30m in 2016 to close to $65m on average in 2017, the report said. “New and old market entrants all want a slice of this pie.”
