Transactional Risks
Strong appetite amidst a soft market environment
Underwriters’ appetite for transactional risks is currently extremely strong and market conditions are soft following a slow period for mergers and acquisitions (M&A). This has created an attractive environment for Warranty & Indemnity (W&I) insurance buyers.
Changes in policy terms and conditions
We are seeing a material increase in the use of tax insurance either bolted on to W&I policies or on a standalone basis. We are also seeing a rise in general partner-led (GP-led) secondaries transactions utilising W&I insurance. The transatlantic deal flow is having an impact on UK W&I policies in particular as US buyers seek broader terms that they are familiar with from US style Reps & Warranties polices.
Underwriting changes
Several managing general underwriters (MGUs) and company markets have started to offer W&I including Aviva, Chubb, and Devonshire.
Elsewhere, we are also seeing some scrutiny on cost at the larger institutional brokers, in addition to further consolidation and M&A within the transactional risk space.
Notable claims
Claims activity is on the rise, as coverage terms become increasingly broader and buyers in M&A transactions look to recover losses from unsuccessful, post-pandemic investments.
Geographic/sector differences
Emerging markets are attracting a higher rate environment. This is driven by insurers’ lower familiarity with local laws, higher political and macroeconomic volatility, as well as potentially riskier industry sectors.
New solutions
The primary new solutions are focusing on secondaries and intellectual property.
Outlook
Expected range in rate changes for the next 6 months for claims-free portfolios
Insurance capacity is increasing with new entrants but rates can't go much lower, as growing loss ratios are starting to impact the profitability of insurers’ books.
Expected capacity change in the next 6 months for claims-free portfolios
We expect capacity to remain stable over the next 6 months.
Expected coverage change in the next 6 months for claims-free portfolios
Terms have been broadening in the recent past and we expect the status quo to remain unchanged for the next 6 months.
We are seeing a material increase in the use of tax insurance either bolted on to W&I policies or on a standalone basis.
Emerging risks
While risks are usually specific to the sector, the regulatory environment has been shifting in some areas which is set to affect the risk exposure in transactions:
- Real estate – BSA regulatory environment
- Healthcare – CQC regulatory environment
- Tax environment – increased scrutiny the UK’s HM Revenue & Customs
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