The use of transactional risk insurance increased significantly last year, according to a new report from Marsh. Policy limits of more than $1 billion are now available for single transactions, and private equity firms and strategic investors are increasingly turning to insurance to reduce the risks associated with mergers and acquisitions.
Marsh placed transactional risk insurance on behalf of clients in 1,089 transactions in 2018, a 31% spike from the previous year. Aggregate limits placed also increased, up 35% to $36.5 billion in 2018. The increase was driven by the size and number of transactions across large and mid-market deals in which insurance was used.
Regional findings in Marsh’s report include:
- North America: Total transactional risk insurance limits placed by Marsh in the US and Canada in 2018 grew 53% over 2017 to $16.56 billion. Pricing reductions, larger transactions and increased utilization of insurance have spurred an increase in limits purchased and the number of transactions covered.
- Latin America: Marsh reported increasing investor interest in transactional risk insurance in the region, although average premium rates are significantly higher than in other regions.
- Europe, the Middle East and Africa: Marsh placed transactional risk insurance on 479 transactions last year, an increase of 31% from 2017. Marsh saw an increase of 26% in total transactional risk insurance limits placed in the region, to $15.93 billion. Average premium rates went up despite a significant increase in new capacity.
- Asia: There was significant growth in the use of transactional risk insurance in South Korea and Greater China, especially warranty and indemnity and tax insurance for real estate transactions.
- Pacific: 2018 saw a significant increase in limits placed, reflecting a 36.4% increase in deal count and an increase in the number of large transactions using insurance.
“Transactional risk insurance is now firmly established in the M&A marketplace as an important tool that can help mitigate risk, evidenced by its widespread adoption among private equity firms and strategic investors globally,” said Karen Beldy Torborg, global leader of the private equity and M&A services practice at Marsh JLT Specialty. “Demand for these solutions is on course to remain high throughout the rest of 2019, and we expect the insurance market, now supporting very large limits, to be ready to respond.”