Demand for transactional risk insurance at high: Marsh
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Global mergers and acquisitions activity remained robust in 2017, Marsh L.L.C. said in a report released on Thursday, and the competitive atmosphere led private equity and corporate investors to turn to transactional risk insurance in record numbers.
In Transactional Risk 2017: Year in Review, Marsh said it placed 28% more transactional risk insurance policies globally compared with 2016. Average limits placed also increased, Marsh said rising 38% in 2017, driven by the size and number of transactions in which insurance is being used.
Marsh said that 2017 was the third consecutive year with transaction volumes in excess of $3 trillion.
“Capital availability was strong — in the form of uninvested funds raised by private equity firms and robust corporate balance sheets — while the low interest rate environment continued, as did the corresponding credit availability,” the report said.
Corporate buyers continue to increase their use of transactional risk insurance, and now represent 50% of the policy purchasers, which Marsh said was once almost exclusively the domain of private equity firms.
In addition, Marsh said, demand for both traditional and innovative transactional risk products is increasing, particularly for contingent tax risk.
The global insurance marketplace for transactional risk insurance is becoming more competitive in terms of price, deductibles, and terms and conditions.
In 2017, total transactional risk insurance placed by Marsh in the U.S. and Canada grew 46% over 2016, Marsh said. As a percentage of enterprise value, limits in 2017 grew, to 9.5%, on average.
Transactional risk insurance limits as a percentage of transaction value increased in 2017 across Europe, the Middle East and Africa. Increased insurance capital in the M&A space in warranty and indemnity products led to a significant reduction in pricing from 2016, with sellers seeking a low cap on liability for warranties and indemnities, Marsh said.
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