Use of insurance to cover mergers and acquisitions on the rise: Aon

The use of representations and warranties insurance for mergers and acquisitions continues to grow, according to a report issued Thursday by Aon PLC.

“The increased demand for reps & warranties, tax, litigation and bespoke contingent insurance has led to an expanded marketplace with the number of insurers jumping from just six in 2014 to 20 in 2018,” Aon said in a statement accompanying the release of its M&A and Transaction Solutions: Risk in Review report. “Insurers have also expanded the scope of their coverage for higher risk geographies and industries. In turn, more private equity and an increasing number of strategic dealmakers availed themselves of the coverage.”

Aon said it placed $27.2 billion in limits globally in 2017. In addition, the number of deals increased 34% from 2016 to 2017. The report said the increase could be attributed to four trends: declining premium rates; greater insurance capacity; broadening insurer appetite across industries and geographies; and both insurer and dealmakers expanding globally.

Aon said more than 34% of the North American M&A market used reps and warranties insurance in 2017, up from 20% in 2016.

“It continues to be the case that private equity buyers and sellers have a much higher participation rate than strategic buyers,” Aon said in its statement, adding that the adoption rate among strategic buyers is increasing each year.