Transactional risk limits nearly double, pricing jumps: Marsh

Transactional risk insurance limits placed in North America by Marsh LLC almost doubled to $37.86 billion in 2021, while pricing surged due to the flood of M&A deals in the second half of the year, the broker said in a report Monday.

Limits were spread over 1,847 combined primary and excess policies on 999 transactions – a 71 percent increase in the number of merger and acquisition deals in North America.

Pricing for primary layer representations and warranties coverage jumped over 40% year on year, with average primary rates sitting above 4% for the first year in a decade, Marsh said.

This was due in part to the growing frequency and severity of claims, but also driven by surge pricing as a limited pool of insurers struggled to meet the dramatic increase in demand for cover.

The fourth quarter of 2021 saw a record 366 deals closed in North America – a 41% increase from the same period the prior year, Marsh said.

“We expect the high-rate environment to persist in the short- to medium-term, although the presence of recent market entrants and corresponding capacity could help reduce pricing pressure to some extent,” Marsh said.

Even with new entrants, such as Mosaic Insurance Holdings Ltd. and RiskPoint Underwriting Inc., in the North American market in 2021, demand for transactional insurance overwhelmed underwriters.

As a result, insurer declinations increased well above historical norms, Marsh said. “While most insurers have confirmed their intent to add underwriting staff during 2022, we anticipate the human capital shortfall to persist in the short- to medium-term,” the report said.