Boom in Transactional Risk Insurance

Global demand for transactional risk insurance has risen sharply over the past three years, fuelled by an increase in corporate, private equity and infrastructure funds using insurance to protect their deals and gain a strategic advantage in negotiations, particularly in cross-border transactions, reports Marsh.

Figures released by the insurance broking and risk advisory group show that the amount of transactional risk insurance placed by Marsh grew by 155% in the three years to 2013 – with year on year (YoY) growth of 26% from 2012-2013. In addition to increased client demand, the insurance market has increased its appetite to underwrite these risks, particularly in emerging territories, Marsh added.

Research published by Marsh’s private equity and M&A services practice, entitled
‘M&A Transactional Risk Solutions: Global Growth Special Edition’
, show the limits of insurance placed by Marsh in 2013, compared to 2010, by geography were: Europe, the Middle East and Africa (EMEA), US$2.74bn (US$1.5bn); Asia Pacific, US$1.03bn (US$114m); and Americas, US$1.34bn (US$395m).

Marsh’s report notes that the growing utilisation of transactional risk insurance is most pronounced in Germany, South Africa and across Asia Pacific. Between 2010 and 2013 Marsh noted a 100% increase in policies bound for German transactions, while Asia Pacific experienced the greatest overall growth, with a nine-fold increase in the limits of insurance placed by Marsh.

“The transactional risk insurance market has rapidly evolved from being largely concentrated in Western Europe and the US in 2010, into the global industry it is today,” said Lorraine Lloyd-Thomas, a senior vice president in Marsh’s private equity and M&A services practice and head of the UK transactional risk team.

“Risk appetite is key to this growth: while many firms are looking beyond their own borders for mergers and acquisitions opportunities, the unfamiliarity associated with doing deals overseas means they are taking a much more cautious approach to warranty exposure. Transactional risk insurance solutions mitigate this risk.”

Marsh reports that falling premiums have also contributed to the growing popularity of warranty and indemnity (W&I) insurance globally. For example, in the EMEA region the average premium rate was 1.55% of the limits purchased in 2013, down from 2.1% in 2010.

“New entrants to the market, coupled with falling premiums, has fuelled product innovation as insurers look for new ways to differentiate themselves from competitors and sustain their books of business,” said Lloyd-Thomas. “Clients are taking full advantage of this.”

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