Transactional risk report 2021 : North America

Amid the extensive M&A growth in the region, Marsh placed coverage for 999 transactions in 2021 — a 71% increase on the previous year.

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Amid the extensive M&A growth in the region, Marsh placed coverage for 999 transactions in 2021 — a 71% increase on the previous year. The North America team placed 1,847 combined primary and excess policies in 2021 — amounting to a 78% rise over 2020. These policies represented US$37.86 billion in limits — nearly doubling the limits placed, year on year.

Deal activity was robust throughout the year, with each quarter’s results materially outpacing the corresponding quarter in 2019 and 2020. The fourth quarter saw record performance with 366 deals closed — a 41% increase from the same quarter in 2020.

Notable 2021 trends

“Surge pricing” amid prolific deal activity

After a slight increase in rates for R&W insurance in 2020 in North America, primary layer R&W pricing jumped over 40% year on year. Last year was the first in over a decade where average primary rates sat above 4%. The price rise can be attributed, in part, to the growth in both the frequency and severity of claims. However, the principal reason for the magnitude of the 2021 increase was “surge pricing” during the flood of deals in the second half of the year, particularly in the fourth quarter, which was exacerbated by the limited pool of underwriters. We expect the highrate environment to persist in the short- to medium-term, although the presence of recent market entrants and corresponding capacity could help reduce pricing pressure, to some extent.

Insurers struggle to meet client demand

Client demand for transactional risk insurance increased dramatically in North America during 2021 and insurers, while continuing to show their commitment to the sector, struggled to meet this demand — particularly during the fourth quarter. Even with new underwriting organizations — such as Mosaic Insurance and RiskPoint — entering the North American market in 2021 and existing insurers deploying capital without interruption, demand for transactional insurance overwhelmed underwriters. As a result, Marsh saw insurer declinations increase well above historical norms, which have not previously exceeded 50%. While most insurers have confirmed their intent to add underwriting staff during 2022, we anticipate the human capital shortfall to persist in the short- to medium-term.

Total insurer capacity in North America continues to exceed US$1 billion in limits for any single transaction and nearly 25 underwriters are presently offering terms on a primary basis.

Increase in transaction size and limits purchased

For Marsh’s North American portfolio, median transaction size expanded to US$150 million last year, up from US$130 million in 2020, while average transaction size rose to US$405 million, up from US$345 million, over the same period. This was due to a pronounced increase in utilization of transactional risk insurance on larger deals, with the number of placements made on deals in excess of US$1 billion in enterprise value more than doubling from the prior year.

While median policy limits — as a percentage of enterprise value — remained steady across Marsh’s portfolio in North America at 10% in 2021, average limits purchased — as a percentage of enterprise value — increased significantly to 14.2% up from 10.1% in 2020. Last year, we witnessed sharp divergences in the relative amount of limits purchased depending on the size of the deal. For smaller deals — below US$50 million in enterprise value — buyers purchased limits on average equal to 22.4% of enterprise value. For midsize deals — US$100 million to US$250 million in enterprise value — they bought coverage limits on average equal to 12.6% of enterprise value. For large deals — US$2 billion or more in enterprise value — buyers purchased limits on average equal to 6.8% of enterprise value.

Private equity firms continued to represent a slight majority of insureds in programs placed by Marsh — purchasing approximately 51% of all policies. Still, the trend of corporate and strategic buyers increasing their usage of transactional risk insurance — and purchasing more limits than private equity firms on similarly sized deals — continued in 2021, and we expect 2022 to bring more of the same.

No seller indemnity structures continue to advance

A long-term trend that persisted in 2021 is the significant increase in number of transactions that feature no seller indemnity, meaning that the seller does not have any contractual liability to the buyer for breaches of representations and warranties, other than fraud. This structure — also known as a “public-style” deal — historically represented a small fraction of the overall private company transaction universe and was typically reserved for very large transactions, generally US$1 billion or more of enterprise value. However, it has become far more prevalent in recent years, driven by usage in smaller transactions — some even valued at less than US$50 million. For the first time, in 2021 more than half (52%) of the transactions in Marsh’s US and Canada transactional risk portfolio featured no seller indemnity structures, up from under 25% in 2015. We anticipate that this trend will continue in the short- to medium-term and we will see more no seller indemnity transactions.

Deductibles remain stable

Deductibles held steady at approximately 1% of enterprise value for most transactions in the middle market, with a dropdown feature to 0.5% of enterprise value at the 12-month anniversary of closing. On larger transactions — those with enterprise values of US$400 million or more — it is common for the deductible to be 0.75% of enterprise value, or possibly even lower on transactions with an enterprise value in excess of US$2 billion.

Tax insurance

Tax insurance policies bound by our North America team in 2021 were up significantly from 2020. In line with the strong increase of volume in R&W coverage, there was a material increase in M&A-related tax insurance policies, as compared to prior years. Indeed, the number of policies, and limits placed for M&A transactions was significantly higher in 2021, as compared to 2020 and 2019, and continues the trend of a higher concentration of M&A-related tax insurance placements reflecting an increased adoption in utilization of tax insurance.

Utilization of tax insurance in the renewable energy sector was mixed. There continued to be strong demand for coverage focused on tax basis for investment tax credit projects, and these were predominantly solar energy investments. While usage of tax insurance in connection with M&A deals increased in 2021, renewable energy production tax credit insurance activity was softer than in 2020. The third principal area of tax insurance policies — those placed to allow corporates to manage balance sheet tax risks — remained flat, year over year.

In 2021, we continued to see new, tax-dedicated underwriters enter the market, and numerous additional transactional risk players participate on large tax insurance towers, resulting in downward pressure on premium rates and increased flexibility on policy terms. Such trends stood in stark contrast to the experience in the R&W insurance space. In fact, the rate on line (ROL) for tax insurance policies decreased from 2020, with primary rates settling below 3% by the end of 2021. In light of the increasing delta between pricing on tax insurance policies, relative to R&W insurance policies, we expect an uptick in tax insurance pricing in 2022.


In 2021, Marsh clients submitted 155 claims to R&W insurers on 94 transactions in North America. These figures represent a shift downward from the 256 claims submitted on 132 transactions during the 2020 calendar year. The impacts of Covid-19 likely played a role in the reduced number of claims submitted in 2021 compared to 2020. Given the increased volume of placements in 2021, we expect the number of claims to rise in the coming years in line with the overall expansion of the number of transactions insured.

In the last two years alone, R&W insurers paid approximately US$160 million to Marsh clients in North America — representing over US$200 million in recognized loss.

Of the claims noticed during 2021, the most common type of breaches related to financial statements (18%), employment (16%), environmental (15%), and compliance with laws (14%). These figures are generally consistent with prior years, though there were fewer claims related to tax breaches and more claims related to environmental breaches in 2021. The environmental claims last year, however, consisted of multiple claims made on only a small number of transactions, so we do not expect this trend to continue in future years.

Outlook for 2022

M&A activity levels in North America are expected to remain robust in 2022, with private equity firms in the region sitting on more “dry powder” than ever before. We anticipate that transactional risk insurance will remain a key component on deals in North America, with insurers expanding their underwriting teams to meet demand, following the shortage of underwriters last year. We anticipate that the heightened premium rating environment seen in the second half of last year will continue in the short term, though we do anticipate rates will decrease from fourth quarter 2021 levels, during the course of the year. Insurers will be more focused on disciplined underwriting and exposure management, based on the market’s recent claims experience.