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Risk in Context

Transactional Risk Insurance Purchasing Surges Globally

Posted by Karen Beldy Torborg 28 April 2016

Demand for transactional risk insurance is increasing, with Marsh placing 450 policies globally in 2015, an increase of 32% year-on-year. Uptake increased in all regions, continuing the trend from recent years.

A rise in the number of policies placed in Asia over the past year was particularly noteworthy. Conglomerates in the region are starting to use transactional risk policies as part of their expansion plans as they invest cross-border and into Western economies. The number of policies purchased in Asia more than doubled.

The number of policies also increased in other regions: up 21% in the US and Canada and 15% in Europe, Middle East, and Africa, year-over-year. The US and Canada also experienced a record value of limits placed, rising 56% in 2015 compared to 2014.

Investors and corporations have also become increasingly aware of transactional risk insurance and are using it more often to take deal-related risks off their balance sheets.

Although transactional risk polices have historically been used by private equity firms, they are increasingly being used by corporate buyers and sellers as they look to better compete for assets. This is especially true in asset-auction situations, where transactional risk policies are crucial to differentiating bids and competition between corporate and private equity buyers is aggressive. We expect the percentage of policies for corporate buyers to increase.

Good News for Buyers: Number of Transactional Risk Insurers Also Rises

Fortunately for buyers, the number of insurers offering transactional risk insurance coverage has risen to meet growing demand. More than 25 insurers now offer solutions under the banner of “transactional risk solutions.” The increase has been driven by demand as well as by insurers seeking new sources of written premium.

Insurers have also developed a better understanding of the risks associated with underwriting transaction-related risks, especially those involving breach in representations and warranties.
Barring unforeseen changes, the increased interest in transactional risk solutions is likely to continue.

Karen Beldy Torborg

Karen Beldy Torborg is the global practice leader of Marsh’s Private Equity and M&A Services, providing expert risk management advice to financial sponsors and strategic investors.