Advisen Front Page News
- Thursday, September 16, 2021
Active M&A market leads to higher insurance demand, higher rates
Advisen
Active M&A market leads to higher insurance demand, higher rates
By Erin Ayers, Advisen
An active mergers and acquisitions landscape has led to heightened demand for M&A transaction insurance and a corresponding rise in claim notifications and rates, according to a briefing from Liberty Global Transaction Solutions.
“It is no understatement to say that 2020 was a roller-coaster year for the M&A industry … There has been little let-up in 2021, with transactions continuing apace in all regions of the world, fueling a big uptick in demand for M&A insurance,” stated Liberty in its report, which evaluated the insurer’s book of business amid “unprecedented demand” for M&A insurance.
The COVID-19 pandemic has not led to a sharp rise in notifications as some observers had anticipated, Liberty added, and there has been no sign of dramatic changes in claim severity. Despite a 40% rise in notifications in the Americas, the change is due more to higher volume of business and the fact that many notifications are precautionary, according to the insurer.
Less than 25% of notifications lead to a request for payment, although notifications in the Americas are more likely to lead to a loss. Liberty cited several $150 million-plus claims in the region as well, but has also saw a drop-off in severity in 2021. This risk of larger losses is reflected in the pricing for representations and warranties coverage in the Americas, where rates have risen up to 25% since the third quarter of 2020.
However, notifications in Europe, the Middle East, and Africa (EMEA) did rise noticeably in the first quarter – more in those three months than in the second half of 2020.
“COVID-19 has not led to a surge in ‘buyer’s remorse’ claims,” commented Liberty. However, the pandemic created underwriting challenges for the transaction insurance world, making due diligence more difficult in some areas or thwarting physical inspections. Liberty said it expects some new COVID-related claims trends in the future, including key customer insolvency or higher claims for financial statement issues.
Liberty reported seeing more notifications fall within insureds’ retentions, but no change in notifications above retention. “Meaningful retentions” represent “an important buffer that absorbs a material proportion of low-level claims,” the insurer explained.
