Warranty and Indemnity Risk Map
The market for warranties and indemnities insurance (W&I) in the Asia-Pacific region has developed to the point that it is now commonly deployed in developing jurisdictions to foster the successful completion of transactions. From its start in financial capitals such as London, Sydney, Hong Kong and Singapore, W&I is now being regularly utilized in China, India, Indonesia, the Philippines and throughout Asia. This change has come through a combination of changes in the insurance market and increased demand from financials and corporates engaged in deal activity.
As the market has matured, we have witnessed an increase throughout the region in the breadth of cover afforded to our clients under warranty and indemnity insurance policies. These developments have allowed Australia-based sellers to achieve “clean exits” out of investments in developing jurisdictions, and have given buyers greater comfort in transacting that a credit-worthy counterparty is providing financial security backing the warranties. On both the sell-side and the buy-side, W&I can minimise concerns around deal execution. They can also enable bidders to enhance their competitive positioning in an auction process, which is particularly relevant in the current seller friendly M&A market.
Transacting M&A in a climate of uncertainty can make deals more difficult to execute and ultimately driving value can be more challenging. Clients are looking for alternative ways to mitigate risks in an M&A situation and the use of insurance capital is an option for many.
We have produced a global risk map showing typical pricing and retention parameters for this class of insurance. Premium rates and retention parameters can vary greatly depending on jurisdiction. This is driven by many risk factors including the nature of the deal environment, deal volume, frequency of litigation, and other macro factors which affect insurer appetite.