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Transactional Risk Insurance Firmly Established

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July 12, 2019

In its latest Transactional Risk Insurance Report, Marsh said use of transactional risk insurance significantly increased in 2018. Policy limits in excess of $1 billion are now available for single transactions as private equity firms and strategic investors increasingly use insurance to reduce the risks associated with mergers and acquisitions (M&A).

The report's findings compare the following regions: the United States, the United Kingdom, Continental Europe, Latin America, Asia, and the Pacific.

Marsh said that it placed transactional risk insurance on behalf of clients on 1,089 transactions in 2018, up 31 percent compared to 2017. Aggregate limits placed also increased, rising 35 percent in 2018 to $36.5 billion, driven by the size and number of transactions across large and midmarket deals in which insurance is used.

In 2018, total transactional risk insurance limits placed by Marsh in the United States and Canada grew 53 percent over 2017, to $16.56 billion. Pricing reductions, larger transactions, and increased utilization by corporate/strategic buyers have spurred an increase in limits purchased and the number of transactions covered, according to Marsh.

Transactional risk insurance placed by Marsh in the Europe/Middle East/Africa (EMEA) region amounted to 479 transactions in 2018, an increase of 31 percent. Marsh reported an increase of 26 percent in total transactional risk insurance limits placed in EMEA in 2018 to $15.93 billion. Average premium rates increased despite a significant increase in new capacity.

Last year, Asia also saw notable growth in the use of transactional risk insurance in South Korea and Greater China, especially warranty and indemnity and tax insurance for real estate transactions. Likewise, in 2018, the Pacific region saw a significant increase in limits placed over the previous year, reflecting a 36.4 percent increase in deal count and an increase in the number of large transactions using insurance.

In Latin America, Marsh reports increasing investor interest in transactional risk insurance even though average premium rates are significantly higher than in other regions.

"Transactional risk insurance is now firmly established in the M&A marketplace as an important tool that can help mitigate deal risk, evidenced by its widespread adoption among private equity firms and strategic investors globally," said Karen Beldy Torborg, global leader, Private Equity and M&A Services Practice, Marsh JLT Specialty. "Demand for these solutions is on course to remain high throughout the rest of 2019, and we expect the insurance market, now supporting very large limits, to be ready to respond."

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