Caution drives transactional risk coverage growth
Demand for transactional risk insurance grew by 41 per cent globally in 2012 as firms increasingly turned to the insurance market to protect large deals and cross-border acquisitions or sales.
That was the finding of a report issued by Marsh’s Private Equity and Mergers & Acquisitions Services (PEMA) practice called M&A Transactional Risk Solutions: 2012 Global Review.
In 2012, March placed $2.2 billion worth of business for Europe, the Middle East and Africa (EMEA) compared with $1.7 billion the year before; $423 million in Asia-Pacific compared with $387 million the year before; and $1.4 billion for the Americas compared with $768 million in 2011 – an 86 per cent increase.
According to Marsh, this upward trend is being driven by an increased usage of transactional risk insurance on deals in excess of $100 million by clients operating in North America.
“Overseas buyers seeking acquisitions in North America are increasingly cautious about entering the market, given the uncertainties surrounding economic recovery and the enhanced emphasis on regulation,” said Lorraine Lloyd-Thomas, senior vice president in the PEMA practice at Marsh.
“Conversely, many North American clients are approaching deals in EMEA and Asia Pacific with similar trepidation. As a result, these corporate buyers are leveraging transactional risk insurance solutions to mitigate risk and provide the comfort required to proceed with their transactions.”
Marsh’s report also notes the growing popularity of warranty and indemnity (W&I) insurance in the global infrastructure sector, ranging from simplistic deals relating to wind farms to complex assets such as those owned by utilities and regulated by government agencies.
“Demand for W&I insurance is growing significantly in the global infrastructure investment community. It enables infrastructure funds to exit their investments with minimal warranty exposures, or make their deals more attractive to potential bidders, hopefully resulting in a higher price. There is a great deal of competition among insurers for these risks and Marsh has structured a number of programmes in excess of $300 million limits of insurance in the last year,” added Lloyd-Thomas.
