Aon’s latest report has finally found significant growth in demand for merger and acquisition (M&A) insurance products following a decline in M&A after the 2008 financial crisis.
The report, “Insurance for M&A: A coming of age and an exciting future ahead,” found that the recent economic environment has been favourable to M&A as interest rates remain low, company balance sheets stay stronger, and deal activity rises significantly among private equity firms.
The analysis of data from Allen & Overy revealed that 3,200 deals were transacted around the world using warranty and indemnity (W&I) insurance over the course of 2018. Aon’s research also determined that the market value for transactional liability solutions got up to US$2.3 billion in 2018, which marked a 35% increase from 2014.
“Buyers, sellers, and legal and professional service firms are fully aware of the value of insurance during the transaction process, and this has culminated with improved infrastructure within the insurance market,” said Alistair Lester, chief executive officer of Aon M&A and Transaction Solutions for EMEA. “Insureds now have access to more sophisticated products, a wider choice of providers, larger coverage limits, lower premiums, and services such as capital advisory and consultancy.”
The report also found a growing demand US-style warranty and indemnity (W&I) policies in Europe, which may have been driven by US buyers trying to driver US terms and structures into European sale agreements.
“For an insurer or an MGA, working out how best to capture the opportunities begins with an understanding of the likely evolution of the marketplace. We have developed forecasts for the growth of the marketplace in Europe, including the products that will dominate, evolutions in coverage and how local markets will operate,” said Rohan Dixon, chief executive officer and president of Aon Inpoint. “This enables us to help insurers identify where the opportunities are, how to access them and how they can improve their capabilities and offerings to better serve buyers and sellers in the M&A environment.”
Lester added: “Aon expects to see increased awareness and uptake of the products as insurers begin to offer broader coverage, serve local European markets, and penetrate the small and medium deal size bracket. Tax insurance will be a major growth area, as the value proposition of tax insurance products extends past the M&A deal itself.”