Use of transactional risk insurance significantly increased in 2018. Policy limits in excess of $1 billion are now available for single transactions as private equity firms and strategic investors increasingly use insurance to reduce the risks associated with mergers and acquisitions (M&A), according to global insurance broker Marsh.

In its latest Transactional Risk Insurance Report, Marsh reports that it placed transactional risk insurance on behalf of clients on 1,089 transactions in 2018, up 31% compared to 2017. Aggregate limits placed also increased, rising 35% in 2018 to $36.5 billion, driven by the size and number of transactions across large and mid-market deals in which insurance is used.

Capacity expanded with more than 25 insurers offering coverage in 2018, according to the report.

Transactional risk insurance includes policies that cover risks related to M&A, including representations and warranties insurance, or warranty and indemnity insurance, tax indemnity insurance, and contingent liability insurance.

Citing figures from Mergermarket for 2018, Marsh noted that the value of global M&A transactions climbed 11.5% in 2018 to almost $3.5 trillion. The total deal count was down by about 4%.

Marsh said that pricing reductions, larger transactions, and increased utilization by corporate/strategic buyers spurred an increase in limits purchased and the number of transactions covered.

Globally, limits and number of deals increased by more than a third, while average enterprise value also increased.

Total limits placed in 2018 by Marsh in the U.S. and Canada grew 53% over 2017, to $16.56 billion.

"Transactional risk insurance is now firmly established in the M&A marketplace as an important tool that can help mitigate deal risk, evidenced by its widespread adoption among private equity firms and strategic investors globally," said Karen Beldy Torborg, Global Leader, Private Equity and M&A Services Practice, Marsh JLT Specialty. "Demand for these solutions is on course to remain high throughout the rest of 2019, and we expect the insurance market, now supporting very large limits, to be ready to respond."

Other regional findings of the report include:

  • Latin America: Marsh reports increasing investor interest in transactional risk insurance even though average premium rates are significantly higher than in other regions.

  • Europe, the Middle East and Africa: Marsh placed transactional risk insurance on 479 transactions in 2018, an increase of 31%. Marsh reported an increase of 26% in total transactional risk insurance limits placed in EMEA in 2018 to US$15.93 billion. Average premium rates increased despite a significant increase in new capacity.

  • Asia: Last year saw notable growth in the use of transactional risk insurance in South Korea and Greater China, especially warranty and indemnity and tax insurance for real estate transactions.

  • Pacific: In 2018 there was a significant increase in limits placed over the previous year reflecting a 36.4% increase in deal count and an increase in the number of large transactions using insurance.


"Overall capacity expansion is likely in 2019, along with modest pressure for rate reductions and continued policy innovation," the report concludes.

The report identifies several market trends to watch including increased use of synthetic warranties, broadening of policy forms across geographies, increased use of tax insurance, and parity between private equity and strategic investors.