The use of transactional risk insurance for mergers and acquisitions (M&A) has continued on its upward growth trend, increasing across all regions during 2015 as investors looked to reduce deal risk, according to
Marsh’s
Annual Transactional Risk Report – 2015 Year in Review.
The broker said that globally, its M&A professionals placed 450 transactional risk policies during the year, which was a 32% increase from 2014, and limits placed increased year over year by 45% to US$11.2 billion.
The Asia-Pacific region in particular accounted for the largest year over year increase as Asian conglomerates expanded and invested cross-border into western economies.
In Australia and New Zealand, rates for transactional risk insurance continued to soften to near historic lows, but this was balanced with increased underwriter focus on coverage outcomes, Marsh said.
“The local insurance marketplace is flooded with capital, with some insurers willing to commit limits of up to US$100 million on transactions.”
Fully tipping retentions were now available on certain transactions in Australia and New Zealand, the broker said in its report.
“Beginning last year, certain insurers began to offer fully tipping retentions on select transactions so that, once the policy retention is reached, insureds may recover from the first dollar financial loss for breaches of warranties rather than requiring a certain level of retention.”
Another notable increase was the number of insurers globally offering transactional risk insurance, which includes representations and warranties (R&W), insurance or warranty and indemnity (W&I), tax indemnity insurance and contingent liability insurance.
There are now 25 insurers around the world offering transactional risk insurance on a primary or excess basis, which is a 30% increase in the past year alone, Marsh said.
“With historically low rates in property and casualty insurance classes, underwriters are looking for premium growth in specialty lines.”
The broker also noted that there were signs that corporate buyers were becoming more comfortable purchasing the coverage, with the split between them and private equity firms now standing at 44%/56%.
A growing number of cross border deals into Latin America from the US and the UK had also prompted greater awareness of and interest in transactional risk insurance from Latin America, Marsh said.
“Strategic investors and private equity firms turned to transactional risk insurance to close deals in record numbers in 2015,” said Karen Beldy Torborg, global leader for Marsh’s private equity and M&A services practice. “And we do not see this trend slowing any time soon.
“Global dealmakers across all sectors recognise the important role this solution can play in limiting risk and improving deal terms,” she said.
