30 July 2024
Global M&A Insurance Mid-Year Market Update 2024
Whilst a bout of deal activity, especially for larger transactions, has led to a brighter outlook (compared with 2023), political and economic factors continue to create challenges for deal-makers.
With dry powder needing to be spent and vendors having held out for longer than they would like, buyers and sellers have become more eager to conclude transactions. M&A levels have increased 23% year-to-date compared to 2023, with mega deals (over USD10bn) increasing 75% year-on-year.
However, such statistics need to be considered with reference to the M&A downturn since mid-2022. 2023 saw the lowest aggregate deal volume in over a decade. Many of the same political and economic factors that contributed to uncertainty still apply today, making many businesses not yet sale ready.
M&A mega deals (over USD10bn) increase
Year-on-year
Currency trends
The M&A insurance market continues to evolve and innovate, and over 50 insurers are in active competition, including new entrants. Each insurer needs to differentiate their offering through low pricing, broad coverage and execution speed.
The downturn in M&A activity in 2023 has pushed costs down to record low levels, with Warranty and Indemnity (W&I) / Representations and Warranties (R&W) premium rates falling to as low as 0.4% in the UK and below 2% in the US. In the UK and Europe, excess (retention) levels are as low as 0.2% of EV (tipping to nil) for operational deals and nil for real estate. In the US, c. 0.5% dropping to 0.4% of EV has become common. Only a couple of years ago, premium rates and retention rates were twice as high.
The market
In Europe, US style policy enhancements, such as no general disclosure of the data room or Due Diligence (DD) reports, are being regularly offered for only modest or nil premium increases. W&I processes are becoming much more streamlined, with a lighter touch stress testing of diligence and often no underwriting call. In the US, while underwriting calls are more common, insurers are less reliant on written responses. Policy negotiations are becoming easier, as insurers are more lenient, and clients have more experience with placement processes.
Geographic developments
Insurers are offering terms in a wider range of territories. Whilst Australasia, Europe and North America have traditionally been well within insurer appetite for W&I / R&W placements, South America, MENA and India have also seen a massive uptick in new submissions. Insurers have more experience in a wider range of jurisdictions, as well as trusted advisors to use as underwriting counsel in most countries.
Rates have declined rapidly in emerging markets. Whilst premium rates in sub-Saharan Africa (excluding South Africa) might have been 6-7% eighteen months ago, sub 2% is now expected. In South America, rates have reduced from c. 5% to c. 2% over the same time period.
Rates for specific tax policies have also taken a tumble. In Europe, 0.8% - 2% has become typical – underwriter experience has increased, as has competition between insurers. We have observed premiums as low as GBP30 thousand, as well as an increase in interest in covering matters already on the radar of a tax authority.
Claims processes are now key to insurer selection. Clients want to see tangible data showing that valid claims have been handled smoothly and paid on time. Brokers should discuss with their client the claims experience of each insurer being considered.
Summary
The M&A insurance market is soft but could turn at any moment. We witnessed this in 2020 and 2021, when insurers were unprepared to deal with the sudden influx of deals, and rates nearly doubled in a few months. This is unlikely to happen again to the same extent – insurers are now well-resourced, and ready for deal flow to increase. It is nevertheless always worth addressing your M&A insurance needs as soon as possible in the lead-up to signing, before the market turns.
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