Transactional risk insurance now mainstream product – report

The purchase of transactional risk insurance is now so common that is has become a mainstream feature of mergers and acquisitions worldwide.

So says Marsh Specialty, in its annual review of the cover, which notes that buyers and sellers – both financial sponsors and strategic investors – are increasingly turning to tax insurance to protect themselves from potential tax liabilities that may arise after an acquisition.

This includes for liabilities arising both from target companies' operations and the transaction structure itself. It also found that claims severity was back on an upward trajectory in 2022, following a period of frenetic M&A activity in 2021. This is after the frequency of transactional risk insurance claims declined in 2021 from a record high in 2020.

Craig Schioppo, global head of transactional risk, Marsh Specialty, said: “Last year proved to be a challenging but resilient year for the transactional risk insurance market. Transactional risk insurance has, over the last five years in particular, gained major traction as a critical enabler for both buyers and sellers alike, as more organisations recognise its value in managing and protecting their deals.”

Marsh expects the overall underwriting environment to remain positive this year, with more than US$1bn of insurance limit available for a single transaction in North America and Europe and new entrants expanding the insurance capacity currently available for risks in high growth regions such as Latin America, Africa and Asia.

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