Demand for transactional risk insurance up last year: report

The demand for transactional risk insurance increased significantly last year, notes a new report from Marsh.

Demand for the coverage among its clients grew 41% last year over 2011 globally, notes the report, M&A Transactional Risk Solutions: Global Review 2012, issued from the company’s Private Equity and Mergers & Acquisitions Services (PEMA) business. 

From 2010, the demand has grown 102%, Marsh says. 

In North America, policy limits for transactional risk insurance was up 86%, according to Marsh. That’s mainly because of an increase in the use of that kind of coverage in deals that exceed $100 million, Marsh noted.

In the Americas, the limit of insurance placed was about $1.4 billion last year, with 67 transactional risk policies placed, the report states. In the Europe-Middle East-Africa region (EMEA), 105 policies were placed, according to the report. 

“Overseas buyers seeking acquisitions in North America are increasingly cautious about entering the market, given the uncertainties surrounding economic recovery and the enhanced emphasis on regulation,” Lorraine Lloyd-Thomas, a senior vice president in the PEMA practice at Marsh commented in a statement. 

“Conversely, many North American clients are approaching deals in EMEA and Asia Pacific with similar trepidation. As a result, these corporate buyers are leveraging transactional risk insurance solutions to mitigate risk and provide the comfort required to proceed with their transactions.”

Warranty and indemnity (W&I) insurance is also becoming more popular in the global infrastructure sector, including deals involving wind farms and more complex assets such as government-regulated agencies, Marsh says.  

“(W&I) enables infrastructure funds to exit their investments with minimal warranty exposures, or make their deals more attractive to potential bidders, hopefully resulting in a higher price,” Lloyd-Thomas explained.