Businesses globally are increasingly turning to the insurance market for transactional risk protection in a bid to shield their revenue and assets from the risks they face on acquisition and upon exit or sale, according to a report issued today by Marsh.
The total policy limits for transactional risk insurance purchased by clients increased by 35% to $2.3 billion in the 12 months to June this year, according to Marsh Insights: Transactional Risk Update.
Marsh also reported that 60% of the policies placed worldwide in 2012 were for corporate sellers or buyers, which are typically more cautious on the amount of warranty protection they require in a transaction than their private equity counterparts.
Lorraine Lloyd-Thomas, a Senior Vice President in the Private Equity and Mergers & Acquisitions (PEMA) Practice at Marsh, commented: “Demand for transactional risk insurance has soared as both buyers and sellers worry about how to protect their positions during a deal. We are increasingly seeing sellers build transactional risk insurance into the M&A process in order to exit with minimal post-closing warranty exposure, while at the same time preventing buyers from seeking to reduce the purchase price.
“US buyers are traditionally more risk-averse and are leveraging transactional risk insurance to counter the risks associated with investing overseas in Europe and Asia. We expect the use of transactional risk insurance to become increasingly common in larger and more complex deals, given the reassurance it provides to all parties involved.”
By geography, the limits of insurance placed in the first six months of 2012 were: Europe, the Middle East and Africa (EMEA), $1.29 billion; Asia Pacific, $109 million; and Americas, $897 million. In particular, rapid growth in the Americas and EMEA is being fueled by clients buying higher than average limits of insurance per transaction and the solutions increasingly being used on larger deals.