Demand for transactional risk insurance surged in 2014, surpassing previous records, according to a new report from Marsh.
In its Annual Transactional Risk Report 2014, the global insurance and risk management leader says that policies grew 36% in 2014 to 341 and limits purchased increased 51% to $7.7 million. Much of that demand is attributable to warranty and indemnity, representations and warranties, and tax and contingent liability insurance.
Most of these policies were placed in the U.S., where deals involving mid-size companies and wider use among law and private equity firms drove demand. Eighty of Marsh's 90 new transactional risk policies occurred stateside, an increase of 108%. Coverage expansions that include exclusions for consequential, special and multiplied damages, as well as damages based on diminution in value, raised premiums.
Emerging markets continue to embrace transactional risk insurance, and Marsh brokered the first locally issued policies in Malaysia, Mexico, the Philippines and Saudi Arabia in 2014. Although the number of policies placed in Europe, the Middle East and Africa grew far less (18%) when compared to the U.S., the limits of insurance placed grew 42% to $3.9 million and represents just more than half of the global total. Growth was spread among a wide range of industries, including energy, healthcare, infrastructure, IT, real estate, food and retail.
With 61% of total policies placed, private equity and other financial sponsors are the firms most likely to purchase transactional risk coverage, perhaps "driven by a desire to execute liability-free exits," Marsh posits. However, this is not a global trend: In the Asia-Pacific region, acquisitive corporations are the most active users.
“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," Karen Beldy Torborg, global leader of Marsh’s Private Equity and M&A Services Practice, said in a statement. "We expect to see similar demand for transactional risk insurance in 2015."