Marsh Asia PEMA Transactional and Tax Risks 2021 in Review

In 2021, average premium rates for merger and acquisition (M&A) transaction-related insurance increased to 2.25%, up from 1.60% in 2020.  The increase was driven by an increase in M&A activity that in turn resulted in a rise in demand for insurances such as warranty and indemnity (W&I) coverage. Greater market awareness of transactional risk products have also kept demand for W&I insurance above insurers’ expectations. Regionally, average rates in Asia in 2021 are as follows:

In this video, Marsh PEMA has gathered the latest trends and observations on key transactional risk markets in Southeast Asia, India, Japan, Korea and Greater China, and how insurers are responding to the recent spike in demand for underwriting:

Tax Risk in M&A Transactions

The increasing complexity of tax rules globally contributed to a significant 46% increase in the uptake of tax liability insurance in 2021. Insurance placement activity increased, with Marsh placing 20 policies in India – the highest among Asian markets. Driven by increased competition between insurers, rates for tax policies has generally moderated in 2021 as follows:

• Singapore: From 4% in 2020 to 3% in 2021
• Japan: From 4.5% in 2020 to 4% in 2021
• India: Remaining stable at 4% to 5%

As tax laws become more complex and taxpayers seek innovative solutions to manage their tax risks, the number of tax policies placed to cover Asian tax risk has increased substantially. Watch the video below to find out why tax policies are gaining attention and whom the key insurers for tax risks are:

Working towards the success of your next M&A deal

With the capacity crunch within the transactional risk insurance market in Asia, premium rates for transactional risk insurance will likely remain high in 2022. Companies with upcoming M&A activity should note that insurers are only likely to offer certain services — such as separate trees for multiple bidders in auction deals and pre-exclusivity underwriting — on a case-by-case basis depending on their available capacities.

We have also observed that unlike in the past, insurers are now strictly enforcing the validity date of quotations, and may not be able to honor their terms if a deal fails to proceed into underwriting by the time specified. Insureds should therefore work closely with their broker to ensure adherence to timelines.

It is now more critical than ever to accurately quantify the insurance needs in an M&A deal and implement the appropriate risk mitigation measures to ensure that a policy can be placed within the deal’s desired timeline. The key to peace of mind in the M&A process is to partner with a trusted advisor that can provide guidance based on in-depth M&A insights on each local market and their top insurers.