Surge in demand for transactional risk insurance
Demand for transactional risk insurance grew by 41% globally in 2012 as firms increasingly turned to the insurance market to protect large deals and cross-border acquisitions or sales. According to a report issued today by Marsh's Private Equity and Mergers & Acquisitions Services (PEMA) practice, M&A Transactional Risk Solutions: 2012 Global Review, the limits of insurance placed by Marsh in 2012, compared to 2011, by geography were: Europe, the Middle East and Africa (EMEA), $2.2 billion ($1.7 billion); Asia Pacific, $423 million ($387 million); and Americas, $1.4 billion ($768 million).
The most pronounced increase in policy limits for transactional risk insurance is in North America, up 86% during 2012. According to Marsh, this upward trend is being driven by an increased usage of transactional risk insurance on deals in excess of $100 million by clients operating in North America.
Lorraine Lloyd-Thomas, a Senior Vice President in the PEMA Practice at Marsh and Head of the UK Transactional Risk team, commented: "Overseas buyers seeking acquisitions in North America are increasingly cautious about entering the market, given the uncertainties surrounding economic recovery and the enhanced emphasis on regulation. Conversely, many North American clients are approaching deals in EMEA and Asia Pacific with similar trepidation. As a result, these corporate buyers are leveraging transactional risk insurance solutions to mitigate risk and provide the comfort required to proceed with their transactions."
Marsh's report also notes the growing popularity of warranty and indemnity (W&I) insurance in the global infrastructure sector, ranging from simplistic deals relating to wind farms to complex assets such as those owned by utilities and regulated by government agencies.
"Demand for W&I insurance is growing significantly in the global infrastructure investment community. It enables infrastructure funds to exit their investments with minimal warranty exposures, or make their deals more attractive to potential bidders, hopefully resulting in a higher price. There is a great deal of competition among insurers for these risks and Marsh has structured a number of programmes in excess of $300 million limits of insurance in the last year," added Ms Lloyd-Thomas.