20 February 2013 Insurance

Transaction insurance usage to grow by 25%

The use of transactional insurance, a type of policy tailored to cover the risks surrounding commercial business transactions such as mergers, acquisitions and private equity investments, could rise by as much as 25 per cent in 2013.

That is the view of Jeffrey Cowhey, president of managing general underwriter Ambridge Partners based on an analysis of the trends surrounding mergers and acquisitions, private equity investments and restructurings. According to research by Experian, across the UK, the overall number of mergers, acquisitions, flotations, rights issues and placements announced fell by 3 per cent between 2011 and 2012 although the overall value of those deals increased thanks to some very large individual transactions.

Transactional insurance is currently used on only a small percentage of deals, according to Ambridge, but he believes that a favourable investment environment combined with UK firms following US trends will change this.

“Favourable interest rates combined with the quality of UK businesses and assets makes an attractive proposition for overseas investors. In turn this is helping to keep mergers and acquisitions activity robust and may serve to boost confidence further,” Cowhey said.

“We believe that as a sector, we write insurance for just 1 per cent of the annualised announced deals. In comparison directors’ and officers’ insurance in the US is purchased by 99 per cent of publicly traded companies. We think once more companies and private equity firms realise they can purchase insurance relating to M&A transactions, more will make inquiry into this kind of insurance.”

Cowhey said that since the recession of 2008, certain areas of the deal environment have become more challenging and risk averse.  In many cases M&A transactions come to a grinding halt when parties are not willing to take on the inevitable risks and liabilities which arise. Products such as transactional insurance can help transaction professionals through these problems and facilitate deal completion.

Cowhey said that over the past three years, Ambridge Partners has seen a significant increase in business, and the firm anticipates a 25 per cent increase in deal submissions in 2013.

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