According to a new Marsh Specialty report, organizations around the world turned to transactional risk insurance in 2021 amid a record-breaking mergers and acquisitions (M&A) environment.
Last year, the insurance broker and risk advisor placed a global transactional risk insurance limit of $81.1 billion. According to the report Transactional risk insurance 2021: Year in review, this represents a 73 percent increase from 2020. The limits were spread across over 3,000 policies and 1,900 transactions, representing a 69 percent increase over the previous year.
Marsh placed coverage for just under 1,000 transactions in North America last year, and approximately 1,850 combined primary and excess policies, representing increases of 71% and 78%, respectively. These policies imposed limits totaling $37.86 billion, nearly doubling the limits imposed the previous year.
The dramatic increase in coverage was prompted by record M&A activity, which increased by 64% to $5.9 trillion across 63,000 transactions globally.
“Last year was an exceptional year for M&A across many regions and industries,” said Lucy Clarke, president of Marsh Specialty and Global Placement. “Rising global demand demonstrates how transactional risk insurance has become a well-established deal solution in the M&A marketplace, and is regarded as a critical enabler by both buyers and sellers.” We anticipate that this demand will continue into 2022 as we work with our clients to find innovative solutions to manage their M&A risks and protect their portfolios.”
According to the report, the sharp increase in demand tested market capacity and execution capabilities, with insurer declinations exceeding historical norms. As a result, pricing increased, with North American primary layer representation and warranties (R&W) rates increasing by more than 40% year on year.
Following last year’s sharp price increases, Marsh anticipates capacity expansion and some downward pressure on pricing in 2022.
Last year, Marsh clients submitted 155 claims to R&W insurers on 94 transactions in North America. According to the report, this was a decrease from the 256 claims submitted on 132 transactions in 2020, which was most likely due to the COVID-19 pandemic. Marsh anticipates that the number of claims will rise in the coming years, in line with the overall increase in the number of transactions insured.
Marsh predicts that M&A activity will remain strong in 2022, with insurers expanding their underwriting teams to meet demand.