2022 has been turbulent for the wider M&A industry, despite a recordbreaking year for M&A insurance in 2021. Whilst the global pandemic started to fade at the beginning of the year, other political and economic events have forced deal-makers to re-assess some investments.

This has led to a slight reduction in the number of Warranty & Indemnity (W&I) / Representations & Warranties (R&W) policies taken out this year, although the use of the M&A insurance products (including tax and contingent risk policies) continues to rise on a ’portion of deals done’ basis.

The economic and political landscape has varied across different jurisdictions, meaning contradictory M&A trends have been reported when it comes to each territory. That said, what is consistent is the scale at which W&I insurance expertise is spreading across the world. Given the boom in the use of M&A insurance in 2021, most insurers have expanded into new territories and added significant headcount. Hardening rates at the end of 2021 and a healthy economic outlook gave underwriting teams the incentive they needed to launch into different areas. Almost all insurers have now invested in specific tax capabilities, which reflects a marked difference to the very few tax insurance options available some years ago. A handful of insurers have now also recruited ex-litigators and Intellectual Property (IP) specialists to differentiate themselves and expand their contingent and IP risk offerings, as both products continue to grow at pace.

However, the invasion of Ukraine and the surprising fluctuations in most currencies has led to macroeconomic uncertainty; perhaps the most significant barrier to deal execution. The cost of imports has impacted the value of certain targets in various jurisdictions and some global transactions have stalled pending an uptick in currency strength or a decrease in interest rates. By the beginning of Q4, the Wall Street Journal advised that global M&A activity was down 37% on 2021 year to date. Even tech deals, which were rife during 2020-2021 began to dry up by the end of 2022.

Insurers have therefore had to compete for more deals than they had to in 2021. Premiums have dropped slightly and coverage has widened again, given the expanding expertise and race

to win business. That said, and as we have seen before, opportunities for M&A (and therefore M&A insurance) have risen and will continue to rise even during a downturn. If we take the UK as an example, the current economic situation has resulted in attractive deals for US investors, due to the decreased value of the pound against the dollar. The number of inbound deals from US private equity funds increased markedly towards the end of 2022, which in turn has given insurers opportunities to roll out ‘hybrid’ US-UK style policies (whereby US style disclosure and policy metrics can be synthetically included into the W&I policy, even where the underlying transaction reflects UK/ European mechanisms).

M&A claims have been widespread in 2022. Almost all areas that are warranted have now been claimed against and it is now more critical than ever for clients to understand the claims experience and expertise that each insurer has in-house. Since so many clients now have an understanding of the claims process, specific strategies are now being formalised when it comes to insurer selection.

It has been an interesting year. The very high premiums charged at the end of 2021 proved to be short-lived as the number of deals began to slowly decrease throughout 2022. Insurers have kept agile and commercial, whilst also appreciating that they need to differentiate themselves into new areas in order to say on top of trends and cater to client needs.