Advisen

Transaction risk insurance use rises as part of M&A deals: Aon

Transaction insurance to cover mergers and acquisitions deal risk continues to rise, according to a new report from Aon, which found “extraordinary growth” in the use of the coverage between 2016 and 2018.

“M&A insurance has changed the way deal professionals allocate risk, using insurance as a tool to bridge the gap on one of the most fundamental issues in any M&A transaction: the potential post-closing erosion of value, either of the consideration received by the seller or the business acquired by the buyer,” Aon stated in the report.

The popularity of coverages like representation and warranties insurance has altered the M&A landscape, with strategic buyers using the insurance as a competitive tool. The transaction risk insurance market has had a “transformative effect” on how deals are structured and how risk allocation is viewed, according to Aon.

In 2017, Aon saw the use of R&W insurance rise to 120 deals, for limits of $4.6 billion. The technology sector is particularly active on M&A, but Aon also saw more insurer interest in covering healthcare and pharmaceutical deals.

The flow of insurers  -- up from six in 2014 to 20 in 2018 -- into the transaction insurance space has produced more capacity and competitive premiums, the broker found. Other transaction insurance lines rising in popularity include tax insurance, litigation insurance, intellectual property litigation insurance, and contingent liability insurance.

Editor Erin Ayers can be reached at eayers@advisen.com.