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Transactional risk coverage prices, volume fall sharply

Posted On: Mar. 1, 2023 11:23 AM CST


The amount of insurance limits placed to cover merger and acquisition liabilities and cost of the coverage fell significantly last year, as the underlying market for M&As slowed, according to a report from Marsh LLC.

In its transactional risk report released Tuesday, Marsh said the volume of representations and warranties limits it placed globally in 2022 fell to $59.3 billion from $81.2 billion in 2021. Reps and warranties policies cover breaches of assertions made in M&A contracts.

In North America, limits placed by Marsh fell to $18.9 billion last year from $37.9 billion in 2021, and the number of deals that Marsh worked on fell to 608 from 999, the report said.

Macroeconomic issues such as rising inflation and interest rates, the war in Ukraine and volatile equity markets led to a 38% decrease in M&A deals in the region last year, Marsh said.

Pricing also decreased with reps and warranties premium coming off a January 2022 high of 5.7% — calculated by dividing the premium by policy limit — and falling to 3.5% in December.

“The insured-friendly rate environment is expected to continue in the short-to-medium term. Many of 2022’s macroeconomic headwinds are also evident this year, and there is ample underwriting capacity in North America that has been bolstered by new transactional risk market entrants joining an already crowded underwriter landscape,” the report said.

In Europe, the Middle East and Africa, where M&A deal volume remained consistent with 2021 in some markets but fell in others, total limits placed by Marsh fell to $31.2 billion in 2022 from $35.9 billion a year earlier.