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While high interest rates, geopolitical tensions, regulatory intervention and other macroeconomic headwinds continue to reduce mergers and acquisitions deal volume globally, the percentage of deals with M&A insurance cover is rising, according to the Gallagher Global M&A Insurance Market Update 2023 Review and 2024 Outlook. The report includes more detailed analysis of M&A markets in different regions, including Australian, New Zealand and Asian jurisdictions.

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We are experiencing buyers and sellers utilising the insurance work stream as a critical tool to mitigate risks in M&A transactions as part of the typical suite of due diligence, including the extensive use of W&I insurance by corporates beyond the solution's traditional PE and financial sponsor base.
Antony Butcher, National Practice Leader, M&A Insurance Services

General M&A trends and market conditions

Although mega deal volumes are down 42% from 2022, smaller deals (and discrete large deals) are contributing to the growing demand for M&A protections where W&I insurance remains a popular tool for both buyers and sellers. Generally, despite interest rates remaining high, private equity firms and large corporates alike are eager to stay current and competitive by making new investments, and we experienced a spike in new enquiries during 2023.

Most insurers have increased their insurance capacity and underwriting resources, with new entrants to the market competition evidenced by dramatic premium reductions and coverage innovations over the past 12 months, with tipping retentions offered on some deals in the United Kingdom.

Insurers continue to expand into emerging markets such as South America, Africa and India. Underwriters are also getting more comfortable with a wider range of jurisdictions, as their experience and relationships with local counsel grow. They are also able to accommodate more limited due diligence.

Strong appetite for M&A deal protection in the Asia-Pacific region

Key findings:

  • the surge in volume of W&I-insured M&A transactions;
  • the drop in average premium paid per transaction;
  • the increased median transaction size of W&I-insured M&A deals in Australia and New Zealand;
  • key industry sectors involved in taking out W&I cover include technology, energy and resources, transportation and logistics.
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Contrary to the wider M&A market conditions and the downwards trend in M&A activity, the Gallagher Asia Pacific Transactional Risks practice saw a year of strong growth in terms of both transaction volumes and value. 2023 may ultimately be viewed as the starting point of a multiple year cycle for M&A insurance markets, where premium rates are softening and competition levels are high.
William Zhao, Head of Transactional Risks, M&A Insurance Services

The team observed a general decrease in average premium rates (premium as a percentage of the policy limits) across the Asia-Pacific region. In Asia (excluding Australia and New Zealand) the average premium rate on line in 2023 dropped from 1.69% to 1.49% compared to the prior year. Similarly, pricing for Australian and New Zealand transactions saw a modest decrease from 1.34% to 1.29% in 2023.

This small reduction in premium rates reflects both reduced M&A submission volumes and new market entrants bringing capacity to the region, resulting in greater competition among W&I insurers.

Against this background W&I insurers have continued to broaden their risk appetite for emerging risks and sectors, with most W&I insurance policies in 2023 involving target companies operating in technology, energy and resources, transportation and logistics sectors. In particular, we have observed an acceleration of deals involving large-scale renewable energy assets, critical digital infrastructure, healthcare and AI-enabled service companies.

About the Gallagher Transactional Risks team

The Gallagher Transactional Risks team is part of the M&A Insurance Service practice dedicated to supporting corporates, investors and advisors to understand, mitigate and insure against risks in any given M&A transactions. The main service offerings are outlined below:

  • transactional risks insurance which primarily includes warranty and indemnity or representations and warranties insurance, tax liability insurance and contingent liability insurance;
  • insurance due diligence;
  • portfolio company insurance and integration with buyer insurance programs; and
  • tailored directors and officers' liability cover.

The 30+ specialists that make up our global transactional risks team include qualified corporate lawyers, financial advisors, M&A underwriters, tax experts and insurance professionals with broad deal experience spanning a range of sectors and jurisdictions including the UK and EEA, USA, Canada, Asia-Pacific, India, South America, Africa and the Middle East.

View report

Disclaimer

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