The take-up of transaction risk insurance (TRI) continues to grow along with confidence in its effectiveness in paying claims, according to new data from insurance group Tokio Marine HCC (TMHCC).
The finding comes despite a marked turndown in mergers and acquisitions (M&A) activity over the past year.
Carlos Fane, TMHCC claims manager for financial lines and transaction risk, said that the insurance company has managed hundreds of claims with tens of millions of dollars’ worth of settlements resulting in a “huge amount of claims data.”
“Overall, the picture that emerges is that W&I insurance has steadily grown into a key feature of the M&A landscape and that, when things go wrong, policies respond,” Thane said. “We shall continue to play our part in ensuring this continues and look forward to sharing our experience and insights in the future.”
The average notification rate on a TRI policy was 16%, with 86% of these made within one year of deal completion. This was a significant increase from the average of 50% between 2013 and 2019, according to the TMHCC report.
The TRI provider used nearly 10 years’ worth of claims and payment data from various sectors to present its first TRI claims report, focusing on Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC) regions.
EMEA had the most severe claims, with 14% resulting in a loss of over £3.8m. Meanwhile, claims were less severe in APAC but have been more frequent.
Tax breaches were the most commonly notified claims, accounting for 37% of EMEA claims and 25% in APAC. The report, however, noted that tax-related breaches tended to be low severity, easily resolved, uncontentious, and made up only 17% of overall losses.
Meanwhile, accounts breaches were the next most commonly notified, accounting for 17% of all notifications but represent 41% of all payments made by the insurance group.
When looking at sectors, manufacturing generated the most notifications, representing 20% of the total. Most of the notified claims were low severity and settled quickly.
The energy sector, which is one of the smallest elements of TMHCC’s overall book, constituted 17% of all notifications, accounting for 7% of the most severe losses experienced.
