According to a new report by Marsh, the world’s leading insurance broker and risk advisor, private equity firms, corporations, and strategic investors around the world increasingly turned to transactional risk insurance in 2021 to reduce deal risk, amid the record-breaking merger and acquisition (M&A) environment.
The report, Transactional risk insurance 2021: Year in review, published by Marsh Specialty, states that the transactional risk insurance limits placed globally by Marsh Specialty in 2021 totaled $81.1 billion – an increase of 73% over the previous year, with these limits spread across more than 3,000 policies and 1,900 transactions – an increase of 69% on 2020 results.
According to the report, this sharp rise pressed the capacity and execution capabilities of the transactional risk insurance market. This resulted in occurrences of ‘surge pricing’ due to the high deal volume particularly in the second half of 2021, as underwriters struggled to meet demand for cover at existing capacity levels.
Looking forward to 2022, Marsh expects an expansion of overall capacity this year, as well as some downward pressure on pricing following the sharp increases in 2021, as more new entrants move into the market and established insurers grow their existing capabilities.
Lucy Clarke, President, Marsh Specialty & Global Placement, Marsh, said: “Last year was an extraordinary year for M&A across many regions and industries. Rising global demand is testament to how transactional risk insurance is an established deal solution in the M&A marketplace, and is regarded as a critical enabler by both buyers and sellers alike. We expect this demand to continue throughout 2022, as we work with our clients to find innovative solutions to manage their M&A risks and protect their portfolios.”