Growth in Transactional Risk Insurance Amid Rising M&A Activities

The global transactional risk insurance market saw significant growth once more in 2012, as firms increasingly turned to the insurance market to protect large deals and cross-border acquisitions or sales.


Risk advisory and insurance broking group Marsh says it placed a record US$4 billion of policy limits globally in 2012, a 41% increase from the previous year and a 102% increase on its 2010 figures.


A report issued by the company’s private equity and mergers and acquisitions services (PEMA) practice, titled ‘M&A Transactional Risk Solutions: 2012 Global Review’, shows that the limits of insurance placed by Marsh in 2012, compared to 2011, by geography were: Europe, the Middle East and Africa (EMEA), US$2.2bn (US$1.7bn); Asia Pacific, US$423m (US$387m); and the Americas, US$1.4bn (US$768m).


The most pronounced increase in policy limits for transactional risk insurance is in North America, up 86% during 2012. Marsh suggests that this upward trend is being driven by an increased usage of transactional risk insurance on deals in excess of US$100m by clients operating in the region.


“Overseas buyers seeking acquisitions in North America are increasingly cautious about entering the market, given the uncertainties surrounding economic recovery and the enhanced emphasis on regulation,” said Lorraine Lloyd-Thomas, a senior vice president (SVP) in Marsh’s PEMA practice and head of the UK transactional risk team.


“Conversely, many North American clients are approaching deals in EMEA and Asia Pacific with similar trepidation. As a result, these corporate buyers are leveraging transactional risk insurance solutions to mitigate risk and provide the comfort required to proceed with their transactions.”


The report also notes the growing popularity of warranty and indemnity (W&I) insurance in the global infrastructure sector, ranging from simplistic deals relating to wind farms to complex assets such as those owned by utilities and regulated by government agencies.


“Demand for W&I insurance is growing significantly in the global infrastructure investment community,” said Lloyd-Thomas. “It enables infrastructure funds to exit their investments with minimal warranty exposures, or make their deals more attractive to potential bidders, hopefully resulting in a higher price.


"There is a great deal of competition among insurers for these risks and Marsh has structured a number of programmes in excess of US$300m limits of insurance in the last year.”


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