Demand for M&A insurance seeing significant growth

3,200 deals transacted globally in 2018 using W&I insurance with market value reaching $2.3bn—a 35% increase from 2014

LONDON, 18 November 2019 – A new report, “Insurance for M&A: a coming of age and an exciting future ahead”, released today by Aon plc a leading global professional services firm providing a broad range of risk, retirement and health solutions, has found that an increase in M&A activity in today’s challenging economic environment is driving significant growth in demand for M&A insurance products.

Aon’s report finds that following a decline in M&A activity after the 2008 financial crisis, the volume of deals reached pre-recession values in 2015 and has continued to increase. The recent economic environment has been favorable for M&A as interest rates remain low, company balance sheets are stronger, and deal activity rises significantly amongst private equity firms.

Alistair Lester, CEO of Aon M&A and Transaction Solutions EMEA, says, “Despite a decrease in M&A activity in EMEA during 2019, it is striking to see the continued strong demand for insurance solutions in transactions. Buyers, sellers, and legal and professional service firms are fully aware of the value of insurance during the transaction process, and this has culminated with improved infrastructure within the insurance market. Insureds now have access to more sophisticated products, a wider choice of providers, larger coverage limits, lower premiums, and services such as capital advisory and consultancy.”

Aon’s analysis of data from Allen & Overy found that 3,200 deals were transacted globally using warranty and indemnity (W&I) insurance in 2018. Aon’s research also finds that the market value for transactional liability solutions reached $2.3bn in 2018, demonstrating a 35% increase from 2014. While W&I insurance remains the largest product by premium volume, buyers and sellers are also looking to tax insurance, litigation and contingency insurance, and bespoke products that include environmental or cyber policies.

Aon’s report also identifies a growing trend of demand for US-style W&I policies in Europe, driven by US buyers trying to drive US terms and structures into European sale agreements.

Rohan Dixon, CEO & President of Aon Inpoint, says “For an insurer or an MGA, working out how best to capture the opportunities begins with an understanding of the likely evolution of the marketplace. We have developed forecasts for the growth of the marketplace in Europe, including the products that will dominate, evolutions in coverage and how local markets will operate. This enables us to help insurers identify where the opportunities are, how to access them and how they can improve their capabilities and offerings to better serve buyers and sellers in the M&A environment.”

Alistair Lester says, “Aon expects to see increased awareness and uptake of the products as insurers begin to offer broader coverage, serve local European markets and penetrate the small and medium deal size bracket. Tax insurance will be a major growth area, as the value proposition of tax insurance products extends past the M&A deal itself”.

Lester adds “The M&A community has shown that it values the enabling role that insurance can play and has increasingly challenged the industry to develop ever more innovative solutions to meet the challenges it faces. Insurers that can respond to this need and find creative ways to deploy capital will be well placed to benefit from the opportunities presented.”