New York, March 1, 2023
Marsh, the world’s leading insurance broker and risk advisor, today released a report which highlights the continued rise of transactional risk insurance as a mainstream feature of mergers and acquisitions (M&A) worldwide.
According to the report, Transactional risk insurance 2022: Year in review, published by Marsh Specialty, transactional risk insurance has gone from being an esoteric product two decades ago to a mainstream solution protecting buyers and sellers around the world from the risks inherent in M&A transactions.
Among key findings, the report noted that buyers and sellers -- both financial sponsors and strategic investors -- are increasingly turning to tax insurance to protect themselves from potential tax liabilities that may arise after an acquisition. This includes for liabilities arising both from target companies' operations and the transaction structure itself. It also found that claims severity was back on an upward trajectory in 2022, following a period of frenetic M&A activity in 2021. This is after the frequency of transactional risk insurance claims declined in 2021 from a record high in 2020.
Craig Schioppo, Global Head of Transactional Risk, Marsh Specialty, said: “Last year proved to be a challenging but resilient year for the transactional risk insurance market. Transactional risk insurance has, over the last five years in particular, gained major traction as a critical enabler for both buyers and sellers alike, as more organizations recognize its value in managing and protecting their deals.”
In 2023, Marsh Specialty expects the overall underwriting environment to remain positive, with more than $1 billion of insurance limit available for a single transaction in North America and Europe, and new entrants expanding the insurance capacity currently available for risks in high growth regions such as Latin America, Africa, and Asia.
Leo Flindall, UK Transactional Risk Co-Leader, Marsh Specialty and one of the report’s authors, added: “Dealmakers expect an improving M&A market in the second half of 2023, driven by expectations of a more favorable financing market, coupled with private equity firms sitting on more ‘dry powder’ than ever before. We expect the transactional risk insurance market to grow further this year, with the products now being a key component of deals and insurers expanding their underwriting appetite to meet demand.”