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Transactional risk report 2021: Asia

Asia saw a large uptick in M&A activity in 2021 in line with the rest of the world, resulting in a capacity shortage in the region’s W&I insurance market. This, in turn, led to a general increase in average rates.

Asia saw a large uptick in M&A activity in 2021 in line with the rest of the world, resulting in a capacity shortage in the region’s W&I insurance market. This, in turn, led to a general increase in average rates.

Following a fairly slow year in 2020, largely due to the Covid-19 pandemic, deal count increased from 87 to 127 last year, an uptick of 46%, with India, Japan, and the Association of Southeast Asian Nations (ASEAN) making up the bulk of that deal activity. Sector-wise, most deals took place in real estate, manufacturing, and the media, telecoms, and technology industries. South Korea also saw a number of deals in the waste and recycling sector — notably the country’s busiest sector in 2021.

Rates rose significantly last year, when compared to 2020. As in other regions, insurers’ capacity to service deals was stretched for most of the year (particularly in the second half) and the market faced an insurance supply crunch. Average rates increased generally across Asia — from 1.60% to 2.25%, year on year. The increase was particularly pronounced in India and Greater China, where average rates rose year on year from 1.50% to 2.60% and 1.40% to 2.63%, respectively.

Average insured deal size also increased sharply from US$295 million to US$360 million in 2021 — returning to near pre-Covid-19 levels. Notably, large deals in excess of US$1 billion made a comeback last year, after the effects of the pandemic resulted in deals in this size bracket drying up in 2020.

Average limit and average retention remained stable amid the unprecedented deal flow. Average limits across Asia were 23.6% of deal value — with this percentage decreasing as the deal value rose. The average retention for 2021 was 0.64%, which takes into account lower (or sometimes no) retention on real estate deals, in addition to the higher-than-average retentions in higher risk jurisdictions and sectors.

Notable 2021 trends

Domestic W&I cover proves popular in Japan

In 2021, the number of domestic W&I insurance policies placed with local insurers in Japan increased almost tenfold. While comparable in coverage to “international” W&I insurance policies, the relatively new local offering is targeted at small- to mid-cap domestic Japanese deals. These policies have also been welcomed by domestic M&A players who are more comfortable having the entire underwriting process and communication with insurers carried out in Japanese. This circumvents requirements imposed by most international W&I insurers for translation of Japanese language sale agreements and due diligence reports for underwriting purposes.

Reduced appetite for Chinese deals

Demand for W&I insurance on M&A deals in China remains healthy. However, insurers have become more cautious on quoting for such deals. This is due to an increase in regulatory uncertainty brought about by current events, the recent challenges faced in the property market, and tightening of the regulation of internet-oriented technology enterprises, private education firms, and other sectors. Insurers are expected to adopt a “wait-and-see” approach, while continuing to decline a higher number of M&A deals than in previous years, and to quote higher pricing across all sectors for deals that remain within appetite.

Increase in tax policies

The number of tax policies placed to cover Asian tax risk has increased substantially. Specifically, there is a considerable growth in interest with respect to tax risks. In Asia (excluding India), the number of tax policies has increased by close to 300%, from 2020 figures. It is expected that this trend will continue as tax laws are becoming more complex and taxpayers continue to look for innovative solutions to manage their tax risks.


In 2021, we reported a lower claims rate in the region than usual, with 12.5% of deals placed receiving a notification. This was just under a 4 percentage point decrease on 2020 and 2019, when a 16% rate of claim, per deal, was reported.

Overall, we note that claims activity in Asia has remained largely consistent for the past three years. In this regard, it is unsurprising that tax breaches accounted for more than half of W&I claim notifications in 2021 across Asia — and double the number of financial statements breaches reported in the year. This continues a trend we first observed in 2019.

Tax issues will continue to crop up, especially in the historic corporate tax filings of targets, where it may take a few years for tax authorities to close off their reviews of these returns. Buyers are recommended to ring-fence identified tax issues and consider risk allocation, including via liability policies, if suitable. On that front, our rate of notification for tax-specific liability policies continues to grow, as clients become more adept at understanding and utilizing the product.

Outlook for 2022

Rates are likely to remain elevated in 2022, if demand for W&I insurance continues to exceed insurer expectations, due to greater competition for scarce underwriting resources. Certain services, such as having separate trees for multiple bidders in auction deals and pre-exclusivity underwriting, may not always be available. Insurers are likely only to be able to offer this support on a case-by-case basis, depending on their available capacity, at the relevant time.

Clients should also engage with Marsh and insurers at an early stage of a transaction to ensure that a policy can be placed within the desired deal timetable, as insurers servicing Asia may not have the bandwidth to quote or underwrite a deal at short notice.

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