Russia-Ukraine impact on M&A insurance market uncertain

M&A insurance buyers have seen exclusions added to policies since the invasion of Ukraine and the imposition of international sanctions on Russia and Belarus, but whether the conflict will affect insurance prices remains unclear.

Pricing, which jumped due to a surge of M&A deals in the fourth quarter of 2021, rose in the first quarter of this year from the year-earlier period, and further increases are possible, experts said.

Issues like the war tend to affect coverage, rather than price, said Emily Maier, partner and senior vice president, national group leader of M&A insurance, at Woodruff Sawyer & Co., who is based in Austin, Texas.

“The issue is always the precise nature of coverage that is or isn’t provided,” under representations and warranties policies, Ms. Maier said.

William Monat, Chicago-based global head of transactional liability at Mosaic Insurance Holdings Ltd., said insurers are more concerned about underwriting to the exposure and underwriting to make sure they are not covering any known exposure.

“It’s more of a terms of coverage issue than a pricing issue,” Mr. Monat said.

If a target being acquired has exposure to the conflict – a known political exposure – transactional risk insurers will exclude it, said Larry Shapiro, San Francisco-based managing director and representations and warranties insurance team leader at Alliant Insurance Services Inc.

Insurers have responded with either a broad exclusion to any exposure related to Russia, Ukraine or Belarus, or with a more tailored response in which they would still expect to exclude a related exposure but only if it’s applicable, he said.

If there is any Russia-Ukraine exposure at the submissions stage, “we would broadly exclude operations, sales or dealings with counterparties in those countries,” said Jay Rittberg, managing principal at Euclid Transactional LLC in New York.

“If we don’t see a connection, we’re paying attention and looking at it in diligence and if there is something we may exclude during the diligence process,” Mr. Rittberg said.

If there’s tangential exposure on a deal that makes the risk of loss higher it may affect pricing or terms, he said.

“Sometimes there are indirect impacts of war that might increase the loss profile of a business and we might use terms, conditions, retentions and other things,” Mr. Rittberg said.

On a global basis, marketwide pricing was up 10% in the first quarter versus the first quarter of 2021, said Rowan Bamford, London-based president of Liberty Global Transaction Solutions, a unit of U.S. insurer Liberty Mutual Insurance Co.

The conflict has probably added an element of caution to the market, Mr. Bamford said.

In the fourth quarter of last year insurers didn’t have the resources to deal with the increased demand for coverage, said Craig Schioppo, Melville, New York-based head of the U.S. and Canada transactional risk practice at Marsh LLC.

“Since then, prices have peeled back a bit, by 10% or 20% since December,” Mr. Schioppo said.

Meanwhile, it’s too early to tell whether the Russia-Ukraine conflict will have a significant impact on deal volume, said Randi Mason, co-head of the corporate practice at law firm Morrison Cohen LLP in New York.

“Deal volume is still quite high. It’s not at the same pace that it was in the last quarter of 2021, but the first quarter is never as busy as the fourth quarter,” Ms. Mason said.

Cross-border deals into Europe or Eastern Europe have probably slowed, said Ms. Maier of Woodruff Sawyer. “We have not seen a slowdown in domestic deals,” she said.