Transactional risk insurance limits placed by Marsh JLT Specialty in the US and Canada reached US$16.56 billion in 2018, a 53% increase from 2017. The number of transactions closed also jumped by 40% from 359 in 2017 to 504 in 2018. In its recently published Transactional Risk Insurance Report, Marsh attributes both increases to pricing reductions, larger transactions, and more corporate/strategic buyers.
The North American representations and warranties (R&W) insurance market has seen meaningful pricing reductions for a number of years, making this an attractive insurance purchase and a good sell for insurance brokers. In 2018, primary layer rates declined 11% from 2017, following a 13% decrease from 2016. As more carriers enter the space, Marsh JLT Specialty expects pricing to continue to drop, although not at such a dramatic pace.
Another factor spurring the increase in limits purchased and the number of deals closed is the growing trend of corporate/strategic buyers using R&W insurance. According to the Marsh JLT Specialty Transactional Risk Insurance Report, the number of North American transactions with a corporate/strategic insured increased 21% over 2017.
Craig Warnke, managing director, at Marsh JLT Specialty, commented: “In North America, the transactional risk insurance market has seen continued significant growth. We’re into the third year of declining prices, and we expect that to continue in the future thanks partly to the proliferation of carriers. Another clear trend is the increase in corporate/strategic purchasers of this insurance. It used to be dominated by private equity firms, but now corporate clients represent almost 50% of our book.”
Private equity firms made up 55% of Marsh JLT Specialty’s transactional risk insurance book in 2018, compared to 45% corporate/strategic firms. While mapping product growth alongside the increase in corporate/strategic buyers, the impact that private equity has had on the market cannot be ignored, according to Warnke. He described private equity firms’ usage of this product – both in their capacity as a buyer and a seller - as “critical to its growth”.
In terms of the uptick in corporate/strategic buyers, Marsh JLT Specialty views opportunities abound. Craig Schioppo, transactional risk practice leader for Marsh JLT Specialty, told Insurance Business that traditional carriers can leverage the commercial insurance needs of corporate buyers. Essentially, they can “invest resources and offer transactional risk insurance alongside other lines of insurance to their corporate buyers [meaning] they’re able to get premium through the door pretty quickly.”
Insurance brokers looking to tap into the attractive transactional risk insurance market need to take a deep dive and educate themselves thoroughly about the products. Schioppo commented: “It’s simple. You need to have people who are educated in this area and who generally have backgrounds in mergers and acquisitions so that they can talk to clients and prospects about how the product looks and how to use it successfully. I think brokers who are looking to get into this really need to build a team of people who are somewhat skilled in M&A to start with.”