M&A deals spurred a double-digit jump in the use of transactional risk insurance in 2015 as players on both sides sought to limit risk and improve deal terms, Marsh has found.
Marsh’s mergers and acquisitions professionals placed 450 transactional risk policies through 2015, a 32 percent increase over the previous year, the firm’s Annual Transactional Risk Report noted.
Alongside that jump, limits placed landed at $11.2 billion, soaring 45 percent compared to the previous year. Factors behind this included larger deal sizes and also more insurance limits purchased per transaction, Marsh said.
Transactional risk insurance isn’t a single policy in itself. As Marsh explains in its report, the coverage, which addresses M&A related risks, includes representations and warranties insurance or warranty and indemnity insurance, tax indemnity insurance and contingent liability insurance.
The Marsh report also found that the market for transactional risk insurance has grown beyond just private equity firms, heading increasingly into the corporate buyer side.
Consider: the split between equity and corporate buyers of the coverage was 56 percent and 44 percent, respectively, in 2015. That compares to 61 percent and 39 percent, respectively, in 2014, and Marsh said the shift will likely continue.
“Strategic investors and private equity firms turned to transactional risk insurance to close deals in record numbers during 2015, and we do not see this trend slowing anytime soon,” Karen Beldy Torborg, global leader for Marsh’s Private Equity and M&A Services practice, said in prepared remarks. “Global dealmakers across all sectors realize the important role this solution can play in limiting risk and improving deal terms.”
Among some of the report’s additional findings:
- More than 25 insurers around the world now offer transactional insurance. That’s a 30 percent jump compared to 2014.
- North America saw a 56 percent rise in limits placed for transactional insurance in 2015, surpassing $4 billion for the first time.
- Transactional risk policies in terms of limits and the number of policies placed jumped in 2015 in Europe, the Middle East and Africa.