Transactional Risk Insurance Hits Record High Despite Pandemic: Marsh Report

After a dramatic downturn in the second quarter of 2020 due to the coronavirus pandemic, merger and acquisition (M&A) deal volume soared to record highs in the second half of the year.

This was mirrored in growth of transactional risk insurance purchases according to data published by Marsh in its 2020 US & Canada Transactional Risk Year in Review report.

Marsh said its U.S. and Canada transactional risk practice completed 584 insurance placements on mergers and acquisitions in 2020 — an 11% increase from 2019. Moreover, Marsh placed a record 1,041 primary and excess transactional risk policies — primarily representations and warranty (R&W) coverage — in 2020, a 22% increase over 2019.

“2020 was a year of highs and lows for M&A, with low volumes in the second quarter followed by explosive growth in the fourth,” said Craig Schioppo, U.S. and Canada Transactional Risk Practice leader. “The corresponding expanded use of transactional risk solutions reflects the essential role they play in deal processes.”

While the events of 2020 confirmed that transactional risk insurance will continue to play an integral role in the M&A marketplace, the report maintains that other challenges remain including a continued increase in claims frequency and severity, rising prices, and an increase in pandemic-related exclusions.

After years of steady decline, R&W insurance rates increased across Marsh’s portfolio by around 10% in 2020.

At the same time, the number of claim notices submitted to insurers from Marsh clients more than doubled in 2020.

“Increases in R&W claims frequency and severity are expected to continue in 2021 and beyond as the volume of transactions continues to grow,” Schioppo said.

“In light of this, we expect rate increases to continue in the short –to medium-term, although the arrival of new insurers to this market could help to offset pricing pressure to some extent.”