Despite a recent decline in mergers and acquisitions (M&A) activity over the past year, new data released by Tokio Marine HCC (TMHCC) emphasises the growing popularity of Transaction Risk Insurance (TRI) and its effectiveness in paying claims, contributing to increased confidence among industry professionals.
TMHCC, a leading provider of TRI with underwriting teams across the globe, has leveraged nearly a decade’s worth of claims and payment data from various sectors to present their first TRI Claims Report.
This comprehensive snapshot focuses on the EMEA (Europe, the Middle East, and Africa) and APAC (Asia-Pacific) regions.
The report reveals that the average notification rate for TRI policies stands at 16%, with a significant 86% of these notifications occurring within one year of deal completion, representing a considerable increase from the average of 50% observed between 2013 and 2019.
While the EMEA region experiences the most severe claims, with 14% resulting in losses exceeding USD 5 million, the APAC region witnesses a higher frequency of claims, although they tend to be less severe.
Tax-related breaches constitute the most commonly notified claims, accounting for over one-third (37%) of EMEA claims and 25% in APAC. However, these breaches generally exhibit low severity, are easily resolved, and contribute to only 17% of overall losses.
Accounts breaches follow as the next commonly notified claims, representing 17% of all notifications but accounting for 41% of all payments made by TMHCC. Contract breaches and property claims make up 11% and 7% of notifications, respectively.
When considering sectors, manufacturing generates the highest number of notifications, representing 20% of the total. However, most of these notifications involve low-severity issues that are resolved promptly.
Energy, although a smaller portion of TMHCC’s book, contributes to 17% of all notifications and accounts for 7% of the most severe losses experienced.
Carlos Fane, Claims Manager for Financial Lines & Transaction Risk at TMHCC, stated, “Since 2010, TMHCC has built up considerable W&I claims handling expertise and has a clear track record of significant claims payments.”
“Over the years, we’ve managed hundreds of claims with settlements totalling tens of millions of dollars, resulting in a huge amount of claims data, from which we can see clear trends which we are now sharing with the wider market.”
Fane continued, “Overall, the picture that emerges is that W&I insurance has steadily grown into a key feature of the M&A landscape and that, when things go wrong, policies respond. We shall continue to play our part in ensuring this continues and look forward to sharing our experience and insights in the future.”
