Transactional risk insurance market on the rise amid ‘extraordinary’ M&A upsurge

The use of transactional risk insurance has significantly gone up as private equity firms, corporations, and strategic investors increasingly turned to insurance to reduce the risks associated with merger and acquisition (M&As).

According to a new report by Marsh, 2021 was an "extraordinary year" for M&A across many regions and industries. Global M&A activity set new records in terms of the number of deals and total deal value, which exceeded $5.9 trillion across 63,000 transactions — an increase of 64% on the previous year.

Transactional risk insurance placements by Marsh globally reflected the backdrop of the favorable M&A market. Transactional risk insurance includes policies that cover risks related to M&A, such as representations and warranties (R&W) insurance, or warranty and indemnity (W&I) insurance, tax insurance, and contingent liability insurance.

Marsh Specialty placed transactional risk insurance of $81.1 billion in 2021, reflecting an increase of 73% over the previous year, with these limits spread across more than 3,000 policies and 1,900 transactions – an increase of 69% on 2020 results.

This sharp increase pressed the capacity and execution capabilities of the transactional risk insurance market, resulting in occurrences of ‘surge pricing’ due to the high deal volume particularly in the second half of 2021, as underwriters struggled to meet demand for cover at existing capacity levels.

Looking forward to 2022, Marsh expects an expansion of overall capacity this year, as well as some downward pressure on pricing following the sharp increases in 2021, as more new entrants move into the market and established insurers grow their existing capabilities.

Lucy Clarke (pictured), president of Marsh Specialty & Global Placement, said: “Last year was an extraordinary year for M&A across many regions and industries. Rising global demand is testament to how transactional risk insurance is an established deal solution in the M&A marketplace, and is regarded as a critical enabler by both buyers and sellers alike.

“We expect this demand to continue throughout 2022, as we work with our clients to find innovative solutions to manage their M&A risks and protect their portfolios.”

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