Global demand for transactional risk insurance has grown substantially over the past three years with coverage typically expanding while premium rates and retentions generally declined, Marsh L.L.C. said in a report released Wednesday.
The New York-based brokerage said the amount of transactional risk insurance it placed grew 155% as of 2013, since 2010, with year-on-year growth of 26% in 2013.
According to the report, the limits of insurance placed totaled $2.74 billion in Europe, the Middle East and Africa; $1.03 billion in the Asia-Pacific region; and $1.34 billion in the Americas. In all $5.12 billion was placed in 251 transactional risk policies.
Pointing to the Asia-Pacific region, where the insurance placed was just $114 million in 2010, Marsh said the limited number of insurers in the region willing to offer coverage a few years ago has increased to 15 potential underwriters today.
“The transactional risk insurance market has rapidly evolved from being largely concentrated in Western Europe and the U.S. in 2010 into the global industry it is today,” Karen Beldy Torborg, global leader of Marsh's private equity and mergers and acquisitions services practice, said in the statement.
“Risk appetite is key to this growth. While many firms are looking beyond their own borders for mergers and acquisitions opportunities, the unfamiliarity associated with doing deals overseas means they are taking a much more cautious approach to warranty exposure. Transactional risk insurance solutions mitigate this risk,” she said.
As insurers entering the market have tried to distinguish themselves, “boilerplate exclusions have generally contracted, and points of expanded coverage, such as specific indemnities, can often be around a standard (representations and warranties) policy,” according to the analysis.
The report, “M&A Transaction Risk Solutions: Global Growth Special Edition, is available here.