Competitive M&A landscape drives insurance surge among corporate buyers

Competitive M&A landscape drives insurance surge among corporate buyers | Insurance Business America

Competitive M&A landscape drives insurance surge among corporate buyers

The uptake of transactional risk insurance is seeing a surge in today’s highly competitive merger and acquisition (M&A) environment and reached record numbers last year, a new report from Marsh reveals.

In 2017, the broking and risk management giant placed 28% more transactional risk insurance policies globally compared to the previous year, the firm said in its Transactional Risk 2017: Year in Review report.

As well as a rise in uptake, 2017 saw a global trend for strong growth in both aggregate limits and average limits placed as a percentage of enterprise value (EV) – the latter of which rose 38% year-on-year.

Strategic investors and private equity firms are increasingly turning to the insurance policy as a way to reduce deal risk in today’s M&A climate, according to Marsh.

Corporate buyers are also beginning to account for a much larger chunk of the buying pool, now representing around 50% of those purchasing the policies – a marked shift from a client base that was once almost exclusively taken up by private equity firms.

“In the current M&A environment, transactional risk insurance has become an essential part of the deal process, enabling acquisitions and exits,” commented Karen Beldy Torborg, global leader for Marsh’s Private Equity and M&A Services practice.

“We expect the demand for transactional insurance solutions will continue and our clients will expect a greater level of innovation from insurers in response to this demand.”

In response to this increase in demand, capacity in the insurance marketplace has increased meaningfully, with more than 25 insurers now offering transactional risk insurance globally, according to the report.

“This is being driven, in part, by the desire of providers to find growth outside traditional property and casualty lines,” the report said. “Depending on the jurisdiction and the type of insurance product sought, more than US$1 billion in limits can typically be available on a single transaction.”

Globally, pricing for transactional risk products has continued to fall which Marsh said was a result of “significantly increased competition” in the insurer marketplace. In 2017, average pricing fell by nearly 13% from 2016, compared to a drop of about 2% in 2016 from 2015.