The recent growth in the use of insurance for M&A deals has created greater opportunity and cost savings for all stakeholders. According to Aon’s global M&A Risk in Review report released today by Aon plc, the leading global professional services firm providing a broad range of risk, retirement and health solutions, M&A insurance has changed the way deal professionals distribute risk and how insurers view the risk.
The increased demand for reps & warranties, tax, litigation and bespoke contingent insurance has led to an expanded marketplace with the number of insurers jumping from just six in 2014 to 20 in 2018. Insurers have also expanded the scope of their coverage for higher risk geographies and industries. In turn, more private equity and an increasing number of strategic dealmakers availed themselves of the coverage.
Aon’s Risk in Review report revealed that the firm placed $27.2 billion in limits globally in 2017. The number of deals increased 34 percent from 2016 to 2017. The notable increase has been motivated by four trends: declining premium rates; greater insurance capacity; broadening insurer appetite across industries and geographies; and both insurer and dealmakers expanding globally.
“It wasn’t that long ago that insurers stayed away from the health care, tech and intellectual property sectors – now we are able to complete deals upwards of $15 billion,” said Brian Cochrane, global CEO, M&A and Transaction Solutions at Aon. “We expect this growth trend to continue in 2019 as more complicated risks are addressed and dealmakers work to secure their investments and enhance returns.”
More than 34 percent of the North American M&A market used R&W insurance in 2017, up from 20 percent in 2016. It continues to be the case that private equity buyers and sellers have a much higher participation rate than strategic buyers. However, the adoption rate among strategic buyers is increasing each year, the report notes.
Additionally, the number of tax insurance policies sold to M&A professionals continues to grow, now representing 35 to 45 percent of the tax policies that Aon places annually. Other forms of coverage – including litigation insurance, reverse break fee insurance, contingent liability insurance and intellectual property litigation insurance – are also seeing significant growth as organizations look to manage risk outside of representations and warranties, the report stated.
The trends impacting the M&A landscape have led to growth across the globe, too. The report notes that while North America insureds still procure most of the coverage, buyers in EMEA and APAC are expanding their use of M&A insurance to improve deal outcomes.