While Number of M&A Deals May Decrease, Transaction Insurance Market Remains Resilient

Pre-COVID-19 research showed strong demand, and that demand should hold amid turbulent M&A market...

 Aon plc and Mergermarket have released the latest in their continuing M&A Risk in Review report series.

This exclusive survey of global insurers and managing general underwriters reveals that 79% predict an increase in representations and warranties (R&W) insurance, 63% anticipate litigation and contingency insurance to rise and 88% feel that tax insurance will grow.

While these figures were derived before the outbreak of COVID-19, mergers and acquisitions (M&A) insurance has become such a staple part of the industry that it is expected that the percentages will remain high even if the actual number of transactions declines.

"There is a strong probability that the market in the second half of 2020 and into 2021 will be characterized by distressed deals and M&A insurance will become an increasingly powerful pillar in facilitating these deals," said Matt Heinz, senior managing director at Aon. "Meanwhile, the surge in tax and litigation and contingency insurance is likely to continue as these are not as inextricably linked to the broader M&A market and are key growth products for global insurers."

The report takes an in-depth look at how industry insiders see the market for transaction products developing over the next year. The coverage includes exclusive data exploring regional, deal size and sectoral variations as well as insights on claims, the hard market and premiums, positions and policies.

Key findings from the report include:

• Survey respondents noted M&A insurance (R&W, tax and contingent/litigation) was placed for 4,229 deals globally in 2019, representing continued annual growth in dealmakers' utilization of insurance as a key strategic tool.
• Outside of North America, which realized the greatest increase in policies underwritten in 2019, 11% of survey respondents saw the most growth in Asia, with the same share selecting Europe as their fastest-growing market. More than a quarter (26%) also picked Europe as the market most likely to grow the fastest in 2020.
• Despite COVID-19's impact on deal flow in the first half of 2020, respondents remain optimistic regarding the value of M&A insurance to managing risk in the face of economic uncertainty, particularly distressed transactions, and look forward to insurance being a key factor as deal volume begins to rebound.
• Most respondents (83%) received claims that impacted their deal selection and underwriting approach. Restriction of deal selection was chosen by 47% as the most important consequence following a received claim.
• Regarding policy issuance, 84% of respondents expect to see the most growth in the lower mid-market (deals valued between US$5 million and US$99 million) and the upper mid-market (deals valued between US$100 million and US$999 million).

The full report is available here.