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Use of transactional risk insurance swelled in 2018: Marsh

17th July 2019 - Author: Charlie Wood

A new report from global re/insurance brokerage Marsh suggests the use of transactional risk insurance underwent a significant increase in 2018.

marshFor example, policy limits in excess of $1 billion are now being made available for single transactions as private equity firms and strategic investors increasingly use insurance to reduce the risks associated with mergers and acquisitions.

In its latest Transactional Risk Insurance Report, Marsh reports that it placed transactional risk insurance on behalf of clients on 1,089 transactions in 2018, up 31% compared to 2017.

Aggregate limits placed also increased, rising 35% in 2018 to $36.5 billion, driven by the size and number of transactions across large and mid-market deals in which insurance is used.

In North America, total transactional risk insurance limits placed by Marsh in the US and Canada grew 53% between 2017 and 2019 to $16.56 billion.

Pricing reductions, larger transactions, and increased utilisation by corporate/strategic buyers has reportedly spurred an increase in limits purchased and the number of transactions covered.

In Latin America, Marsh reports increasing investor interest in transactional risk insurance even though average premium rates are significantly higher than in other regions.

In Europe, the Middle East and Africa, Marsh placed transactional risk insurance on 479 transactions in 2018, an increase of 31%.

Marsh reported an increase of 26% in total limits placed in EMEA in 2018 to $15.93 billion. Average premium rates increased despite a significant increase in new capacity.

And in Asia last year, Marsh saw notable growth in South Korea and Greater China, especially warranty and indemnity and tax insurance for real estate transactions.

“Transactional risk insurance is now firmly established in the M&A marketplace as an important tool that can help mitigate deal risk, evidenced by its widespread adoption among private equity firms and strategic investors globally,” said Karen Beldy Torborg, Global Leader, Private Equity and M&A Services Practice, Marsh JLT Specialty.

“Demand for these solutions is on course to remain high throughout the rest of 2019, and we expect the insurance market, now supporting very large limits, to be ready to respond.”

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