Lockton's 2024 Transaction Liability Market Update reveals significant developments in the representations and warranties insurance (RWI), tax, and contingent insurance markets.
The report highlights strong growth in the secondaries market and increasing adoption of transaction liability products in Latin America. It also provides an in-depth claims analysis and insights into the expanding use of tax and litigation insurance.
Despite an uptick in deal activity during the second half of 2024, North American mergers and acquisitions (M&A) volume remained subdued compared to the peaks of 2021. This, combined with high carrier capacity in the RWI market, resulted in historically low premium rates and retention levels.
Average premium rates currently range between 2.3% and 2.7%, depending on deal size, sector, and complexity. Retentions have largely stabilized, with initial retentions generally between 0.50% and 0.75% of enterprise value (EV), and drop-down retentions between 0.30% and 0.45% of EV.
While premium rates showed slight increases late in the year, Lockton anticipates further hardening of the market in 2025, driven by rising demand amid easing inflation, lower interest rates, and the new US presidential administration. Claims experience has also influenced pricing, with insurers adjusting rates to account for recent losses.
Lockton's report points to growing adoption of RWI in Latin America, with increased transaction activity in countries such as Brazil, Chile, Colombia, and Mexico. Lockton has expanded its advisory capabilities in the region, including a dedicated team based in Brazil to support clients with on-the-ground expertise.
The secondary market also experienced record-breaking transaction volume during the first half of 2024, surpassing previous highs set in 2022. Lockton continues to maintain approximately 60% market share in general partner-led and other secondary transactions, having structured insurance solutions for an estimated 15-20% of net asset value traded in such deals.
Tax insurance has broadened its scope beyond traditional applications in M&A transactions and renewable energy tax credits. Policies now address risks related to internal transactions, transfer pricing, valuations, and estate planning. Both private equity firms and publicly traded companies have increasingly utilized tax insurance to manage financial exposures.
The litigation and intellectual property insurance markets have hardened over the past year, driven by claims under judgment preservation and intellectual property collateral protection policies. Despite challenges, insurers are innovating new products to help clients manage contingent liabilities and maximize the value of intangible assets.
Lockton anticipates a stronger rebound in deal-making activity in 2025 as inflationary pressures ease and interest rate cuts create a more favorable environment for M&A. However, uncertainties surrounding the U.S. administration change and its regulatory approach could influence market dynamics.
Lockton noted that it has expanded to over 50 professionals in North America to address the evolving transaction liability market. The firm remains focused on helping clients navigate risks with tailored insurance solutions as they prepare for a potentially more robust M&A landscape in the coming year.
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