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The U.S. and Canada transactional risk insurance practice of Marsh completed 584 insurance placements on mergers and acquisitions in 2020, up 11% from 2019, according to a report from the broker Thursday.
This included a record 1,041 primary and excess transactional risk policies in 2020, up 22% compared with 2019, largely representations and warranty coverage, known colloquially as “reps and warranties.” This was also the first year in which more than 1,000 transactional risk policies were placed in a calendar year.
Transactional risk policies also saw premiums recover in 2020, the first year of primary rates sitting above 3% since 2017. From 2015 to 2019, rates for representations and warranties insurance steadily declined.
Primary R&W insurance rates increased across the Marsh portfolio by 9.7%, to 3.04% rate on line, calculated by dividing premium by policy limits.
The increases in activity and policy volume, however, are accompanied by increased clams, which in turn will drive further rate increases.
“Increases in R&W claims frequency and severity are expected to continue in 2021 and beyond as the volume of transactions continues to grow,” Craig Schioppo, Marsh’s U.S. and Canada transactional risk practice leader, said in a statement with the report. “In light of this, we expect rate increases to continue in the short- to medium-term.”
Broker merger and acquisition activity in 2020 surged past the 2019 deal count by 125, up nearly 20% to a new highwatermark. A look at the number of transactions in each quarter is a study in both the economic impact of the COVID-19 pandemic and the reaction to an expected increase in the capital gains tax rate.