Transactional Risk Insurance in Demand

Businesses globally are increasingly turning to the insurance market for transactional risk protection to shield their revenue and assets from the risks they face on acquisition and upon exit or sale, according to a report from Marsh.

The total policy limits for transactional risk insurance purchased increased by 35 percent to $2.3 billion in the 12 months to June this year, Marsh said.

Marsh also reported that 60 percent of the policies placed worldwide in 2012 were for corporate sellers or buyers, which are typically more cautious on the amount of warranty protection they require than private equity counterparts.

“Demand for transactional risk insurance has soared as both buyers and sellers worry about how to protect their positions during a deal,” said Lorraine Lloyd-Thomas, a senior vice president in the Private Equity and Mergers & Acquisitions (PEMA) Practice at Marsh.

U.S. buyers are traditionally more risk-averse and are leveraging insurance when they invest overseas in Europe and Asia. “We expect the use of transactional risk insurance to become increasingly common in larger and more complex deals, given the reassurance it provides to all parties involved,” she said.

By geography, the limits placed in the first six months of 2012 were: Europe, the Middle East and Africa (EMEA), $1.29 billion; Asia Pacific, $109 million; and Americas, $897 million. Growth in the Americas and EMEA is being fueled by clients buying higher than average limits of insurance per transaction for larger deals.