Liberty Global Transaction Solutions (GTS), a division of Liberty Mutual Insurance, published its fifth annual M&A claims briefing, offering a 2024 analysis of insurance claims in mergers and acquisitions since 2019, broken down by industry, region, and cause.
By outlining which types of deals and industries most frequently generate claims, the report reveals emerging trends in the global M&A insurance landscape.
The report’s findings indicate that global Representations & Warranties (R&W) claims notifications decreased significantly to 120 in 2023, marking a 21% reduction from the previous year. This trend of decline continued into 2024, although GTS does not anticipate further significant drops in notifications.
With policy counts rising again, primarily due to an increase in deal activity in the lower to mid-market segments, the notification rate is expected to stabilise. GTS attributes this recent uptick to the resurgence of M&A transactions in these market sectors.
Claims notifications varied considerably across different regions. The Americas saw the smallest drop in R&W claims notifications in 2023 and recorded an increase in notifications in early 2024, the only region to experience such growth.
In contrast, the Europe, Middle East, and Africa (EMEA) region saw a sharp decline in R&W notifications, with an even more pronounced decrease in the Asia-Pacific region, which reached a three-year low in claims activity. These regional discrepancies reflect the varied economic conditions and market dynamics affecting M&A transactions globally.
The report also reveals a slight decrease in notification frequency for policies underwritten in 2022 and 2023. This reduction may be attributed to a slower deal-making environment, where buyers had more time to evaluate potential acquisitions due to decreased market competition.
Claims were most commonly submitted within 12 months following the closing of transactions, especially in the Americas. This trend suggests that insured parties are refining their processes for evaluating policy claims, focusing their efforts both at the beginning and end of the policy period.
An analysis of claims causes shows that a small number of breach types account for a majority of the financial exposure in M&A insurance. Specifically, five breach types comprised 97% of the total amounts paid or reserved, despite representing only 72% of claims notifications.
Financial breaches, which constituted 14% of notifications, represented 59% of the dollars paid or reserved, with each claim averaging around $15.5 million. Material contract breaches, although only 7% of notifications, resulted in the highest costs per claim, averaging approximately $20 million.
These findings underscore the significant financial implications of specific breach types in M&A transactions.
The report also highlights a rise in third-party claims, with 19% of notifications related to compliance and regulatory issues, often stemming from government investigations into past business practices.
Intellectual property disputes and wage-related claims further added to insurers' defence costs, creating considerable financial exposure.
Liberty GTS President Rowan Bamford observed that these growing third-party claims are prompting insurers to adopt more cautious approaches in assessing litigation risks during the underwriting stage, with a particular emphasis on identifying potential exposures in due diligence processes.
This year marked a milestone for GTS with its largest-ever claims payment, amounting to €46 million, underscoring the resilience of R&W policies.
To date, Liberty GTS has paid or reserved nearly $340 million for R&W claims, with approximately $125 million allocated in 2024 alone. Much of this financial commitment is tied to deals originating from the M&A boom of 2021, as policies from that period mature into active claims.
GTS emphasises that these payments demonstrate the continued value that buyers derive from R&W policies, particularly in a challenging economic environment.
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