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Demand for transactional risk insurance soars
Written by staff reporter
According to figures released by Marsh, demand for transactional risk insurance surged to record levels among the global deal community during 2014. Research conducted by the firm’s Private Equity and Mergers & Acquisitions (M&A) Services Practice reports continued use of the solution for deals in mature markets such as the US and the Nordics. According to the risk advisory, awareness of transactional risk insurance products in emerging markets is continuing to grow; in 2014, the first ever policies were placed in Malaysia, Mexico, the Philippines, and Saudi Arabia, as investors and sellers in these emerging markets look to reduce cross-border deal risk.
According to Marsh’s annual Transactional Risk Report, the limits of transactional risk insurance placed by Marsh globally in 2014 increased 51% from 2013, rising to US$7.7bn.
The US and Canada saw a dramatic increase in the usage of transactional risk insurance in 2014, amid greater acceptance and use by law firms, private equity firms and other deal professionals, especially in the middle market deal space. In the US, the market is being driven by private equity sellers seeking a clean exit, along with buyers utilising transactional risk insurance to enhance their bid in auction scenarios. The limits placed in the US rose to US$2.7bn in 2014, up by 103% from US$1.3bn in 2013.
While growth continued at a steady pace in the mature markets across the Europe, Middle East and Africa (EMEA) region, Marsh reports the rapid adoption of transactional risk insurance in emerging territories. In the Nordic countries Marsh reports an increase of 260% in the number of deals, compared to 2013. The first ever transactional risk insurance policy in Saudi Arabia was placed during 2014, representing a significant milestone in the Middle East. Overall, the limits placed in EMEA rose by 42%, from US42.7bn in 2013 to US$3.9bn in 2014.
Marsh’s report highlights the emergence of new markets in Asia-Pacific in 2014, notably in Malaysia and the Philippines, and an increase in the number of truly multinational transactions, as buyers utilise transactional risk insurance more strategically to protect their deals. The limits placed in Asia-Pacific rose to by 5% to USD1.08 billion in 2014.
Karen Beldy Torborg, global leader of Marsh’s Private Equity and M&A Services Practice, commented: “2014 was a landmark year for the use of this insurance solution. Record demand in mature M&A markets, which is testament to the efficacy of transactional risk insurance, combined with continued increasing usage in emerging markets, helped drive these historic results. We expect to see similar demand for transactional risk insurance in 2015.”