Around 3,200 deals were transacted globally in 2018 using warranty and indemnity (W&I) insurance, with market value reaching $2.3 billion, according to a new report from re/insurance broker Aon.
The report found that market value was up 35% from 2014, with demand for merger and acquisitions (M&A) insurance products driven by increased deal activity in a challenging economic environment.
M&A activity went into a decline after the 2008 financial crisis, Aon explained, but the volume of deals recovered to pre-recession values in 2015 and has continued to increase since then.
The recent economic environment has also been favourable for M&A as interest rates remain low, company balance sheets are stronger, and deal activity is up significantly amongst private equity firms.
“Despite a decrease in M&A activity in EMEA during 2019, it is striking to see the see continued strong demand for insurance solutions in transactions,” said Alistair Lester, CEO of Aon M&A and Transaction Solutions EMEA.
“Buyers, sellers, and legal and professional service firms are fully aware of the value of insurance during the transaction process, and this has culminated with improved infrastructure within the insurance market,” he continued.
“Insureds now have access to more sophisticated products, a wider choice of providers, larger coverage limits, lower premiums, and services such as capital advisory and consultancy.”
While W&I insurance remains the largest product by premium volume, buyers and sellers are also looking to tax insurance, litigation and contingency insurance, and bespoke products that include environmental or cyber policies, Aon’s report noted.
Furthermore, Aon identified a growing trend of demand for US-style W&I policies in Europe, driven by US buyers trying to drive US terms and structures into European sale agreements.
“For an insurer or an MGA, working out how best to capture the opportunities begins with an understanding of the likely evolution of the marketplace,” said Rohan Dixon, CEO & President of Aon Inpoint.
“We have developed forecasts for the growth of the marketplace in Europe, including the products that will dominate, evolutions in coverage and how local markets will operate,” Dixon explained.
“This enables us to help insurers identify where the opportunities are, how to access them and how they can improve their capabilities and offerings to better serve buyers and sellers in the M&A environment.”
Lester further stated: “Aon expects to see increased awareness and uptake of the products as insurers begin to offer broader coverage, serve local European markets and penetrate the small and medium deal size bracket. Tax insurance will be a major growth area, as the value proposition of tax insurance products extends past the M&A deal itself”.
“The M&A community has shown that it values the enabling role that insurance can play and has increasingly challenged the industry to develop ever more innovative solutions to meet the challenges it faces,” he concluded. “Insurers that can respond to this need and find creative ways to deploy capital will be well placed to benefit from the opportunities presented.”
