2020 Transactional Risk Insurance Purchasing Reaches Record High in US and Canada Despite Pandemic Challenges: Marsh Report
New York | March 11, 2021
After a dramatic downturn in the second quarter of 2020 due to the Coronavirus pandemic, merger and acquisition (M&A) deal volume soared to record highs in the second half of the year. This was mirrored in growth of transactional risk insurance purchases according to data published today by Marsh, the world’s leading insurance broker and risk advisor, in its 2020 US & Canada Transactional Risk Year in Review report.
Marsh’s US and Canada Transactional Risk Insurance Practice completed 584 insurance placements on mergers and acquisitions in 2020 — an 11% increase from 2019, according to the report. Moreover, Marsh placed a record 1,041 primary and excess transactional risk policies — primarily representations and warranty (R&W) coverage — in 2020, a 22% increase over 2019.
“2020 was a year of highs and lows for M&A, with low volumes in the second quarter followed by explosive growth in the fourth,” said Craig Schioppo, Marsh’s US & Canada Transactional Risk Practice Leader. “The corresponding expanded use of transactional risk solutions reflects the essential role they play in deal processes.”
While the events of 2020 confirmed that transactional risk insurance will continue to play an integral role in the M&A marketplace, other challenges remain including a continued increase in claims frequency and severity, rising prices, and an increase in pandemic-related exclusions, the report notes.
After years of steady decline, R&W insurance rates increased across Marsh’s portfolio by around 10% in 2020, Marsh found. At the same time, the number of claim notices submitted to insurers from Marsh clients more than doubled in 2020.
“Increases in R&W claims frequency and severity are expected to continue in 2021 and beyond as the volume of transactions continues to grow,” Mr. Schioppo said. “In light of this, we expect rate increases to continue in the short- to medium-term, although the arrival of new insurers to this market could help to offset pricing pressure to some extent.”
Marsh is the world’s leading insurance broker and risk advisor. With around 40,000 colleagues operating in more than 130 countries, Marsh serves commercial and individual clients with data-driven risk solutions and advisory services. Marsh is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people. With annual revenue over $17 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. Follow Marsh on Twitter @MarshGlobal; LinkedIn; Facebook; and YouTube, or subscribe to BRINK.