Firms around the world turned increasingly to transactional risk insurance last year, according to a new report from Marsh.
The report, Transactional Risk Insurance 2021: Year in Review states that the transactional risk insurance limits placed globally by Marsh Specialty in 2021 totaled $81.1bn, an increase of 73% over the previous year, with these limits spread across more than 3,000 policies and 1,900 transactions, an increase of 69% on 2020 results. According to the report, this sharp rise pressed the capacity and execution capabilities of the transactional risk insurance market. This resulted in occurrences of ‘surge pricing’ due to the high deal volume particularly in the second half of 2021, as underwriters struggled to meet demand for cover at existing capacity levels.
Lucy Clarke, president of Marsh specialty & global placement at Marsh, said: “Last year was an extraordinary year for M&A across many regions and industries. Rising global demand is testament to how transactional risk insurance is an established deal solution in the M&A marketplace, and is regarded as a critical enabler by both buyers and sellers alike. We expect this demand to continue throughout 2022, as we work with our clients to find innovative solutions to manage their M&A risks and protect their portfolios.”
A number of factors, write the report’s authors, contributed to the boon year.
They wrote: “A combination of favourable deal environment factors remained intact throughout 2021, including persistently low interest rates, robust uninvested private equity funds, strong strategic investor balance sheets, responsive credit markets, and the rising number of special purpose acquisition companies (SPACs). All these elements led to fierce competition for assets and record levels of announced and completed transactions.”
The authors also write that rates are likely to remain elevated throughout this year if demand for W&I insurance continues to exceed the expectations of insurers.
They added: “Certain services, such as having separate trees for multiple bidders in auction deals and pre-exclusivity underwriting, may not always be available. Insurers are likely only to be able to offer this support on a case-by-case basis, depending on their available capacity, at the relevant time.”
