Use of W&I insurance in EMEA M&A deals sees sharp rise
New research from insurance broker and risk adviser Marsh has found that warranty and indemnity (W&I) claims notifications across Europe, the Middle East and Africa (EMEA) have increased significantly since 2016.
Rising claims notifications – up 293 per cent from 2016 to 2018 – correlate with increasing demand for W&I insurance by buyers and sellers to protect M&A deals.
Released today, the Transactional Risk Insurance Claims Study draws on Marsh JLT Specialty’s claims data between 2009 and 2019, and details 175 loss notifications across 24 countries in EMEA. It charts the growth of W&I insurance over the last decade and claims notifications as a proportion of policies placed during this period.
Significantly, large deals (those in excess of USD1 billion in transaction value) from 2016 onwards have had more notifications as a proportion of policies placed, with 17 per cent of such transactions experiencing a notification. In Marsh’s experience, this was driven by the complexity of larger deals and pressure to execute transactions quickly. Consequently, claims payments made to Marsh clients has risen to approximately USD100 million over the last three years.
In addition, the research also found that more than half of the claims notifications made during the last decade relate to either tax (31 per cent), or financial statements warranties (23 per cent). Tax notifications have become increasingly frequent from 2016 onwards.
The research also found that there was a significant reduction in the amount of time taken to resolve claims between 2012 and 2017. For example, while 100 per cent of claims notifications took more than two years to resolve in 2012, in 2017 two-thirds of claims were resolved and paid within six months.
Lorraine Lloyd-Thomas, Managing Director, Private Equity and M&A Practice, Marsh JLT Specialty, says: “As the number of M&A transactions continues to rise, so too is competition in the insurance sector to develop innovative solutions that meet the increased demand for W&I coverage. This means that policy wordings are now very comprehensive and more likely to be triggered in the event of a claim.
“W&I insurance is no longer just a deal facilitation tool but a proven risk transfer mechanism, as buyers and sellers take advantage of the product to protect even the most complex and cross-border deals.”