International M&A insurance broker, Howden M&A has released its annual M&A Insurance Claims Report, analysing the key trends that emerged across the UK and Europe over the course of the Covid-19 pandemic.
An increase of deal activity and use of M&A insurance has led to a record rise in the number of notifications, but the pandemic did not bring about a surge in the volume of claims or the number of coronavirus-related break events that had been anticipated at the outset.
In the report, Howden M&A reveals that transactions with an enterprise value of at least €1bn attract a higher notification rate when compared to smaller deals, with notifications within the large cap deal class increasing from 18.5% to 21% between 2019 and 2020/21.
However notifications as a percentage across all deals over a six-year period from 2015 to 2021 stands at 12%.
Howden also found that 90% of notifications were made within the first 18 months of policy inception, compared to a figure of 62% for the 2020-21 reporting period, as the proportion of claims notified after 18 months rose considerably from 10% to 38%.
This may be explained by the insurance market offering longer warranty periods, meaning policyholders have more time to uncover issues.
The broker is also seeing a rise in tax claims, which typically benefit from longer warranty periods.
Across all deals, Material Contracts and Financial Statements continue to be two of the most commonly notified warranty breaches.
However, the report revealed a noticeable increase in notifications relating to Compliance with Laws warranties, with the rate of these notifications increasing from 3% in 2020 to 18.4% in 2021.
Although the top three warranty breaches are consistent no matter when a breach is notified, data shows that it takes longer for Tax matters to be notified given audit cycles and the extended warranty periods.
Drew Wardrope, Managing Director at Howden M&A said: “2021 has been an unprecedented year for M&A insurance claims activity. The Covid-19 pandemic may not have brought about the influx of claims or breach events expected.
“However, the increased deal activity and use of M&A insurance has led to an increase in the number of notifications. Price adjustments are therefore inevitable, particularly at sector level.”
Anna Robinson, Head of Claims & Advocacy at Howden M&A added: “Looking ahead, the absolute number of notifications will continue to increase, especially on policies covering known issues.
“At Howden M&A, we have witnessed a year-on-year increase in deal flow and placed more policies than ever before, with these transactions translating into a record number of notifications. In response to an increase in notifications, we are looking forward to growing our claims team to ensure our clients continue to receive high quality, diligent and timely advice.”
