Risk Management

M&A insurance rates rising: Liberty Mutual

Claire Wilkinson

September 15, 2021 Reprints

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Representations and warranties insurance rates in the Americas have increased by up to 25% since the third quarter of 2020, due to rising claims amid a rebound in mergers and acquisitions activity, Liberty Global Transaction Solutions, part of Liberty Mutual Insurance Co., said in a report released Wednesday.

The Americas region saw a higher proportion of high and medium severity claims in the 36 months from 2018 to 2020, though this trend appears to have reversed in the first five months of 2021, Liberty Mutual said in its review of policyholder claims.

Some 14% of claims in the Americas region were high severity ($10 million-plus) in the 36-month period, compared with 7% in Asia Pacific and 8% in the Europe, Middle East and Africa, the report found.

The Americas also saw a higher proportion of medium severity ($1 million to $10 million) claims at 22%, versus 16% in Asia Pacific and 10% in Europe, Middle East and Africa in the same period.

More claims were also for the full tower limit in the Americas, compared with the EMEA and APAC regions in the 36-month period, Liberty Mutual said.

A greater number of notifications tend to relate to either a breach of financial statement warranties or material contracts warranties in the Americas, which can result in larger losses compared with other claims, the report said.

However, since the start of 2021, EMEA has seen the most high and medium severity claims, while severity has reduced in the Americas and APAC regions, Liberty Mutual said.

Some 13% of claims were high severity and 13% medium severity in EMEA, versus 6% for each category in the Americas, based on notifications received from Jan. 1 to May 31, 2021, the report said.

This is likely to add to growing calls for rate increases in EMEA, especially if this is part of a lasting pattern, Liberty Mutual said.

A number of the high severity claims involved founder member deals, some involving suspected fraud by the founder, according to the report. Accounting and financial issues account for 41% of high severity claims overall.