North America continues to see strong demand for transactional risk insurance: Marsh

North America continued to see strong demand for transactional risk insurance, with the market showing no signs of slowing down after the explosive growth witnessed in 2014, according to a statement released on Friday by Marsh Ltd.

Canadian Underwriter reported in March that the number of transactional risk policies placed in United States and Canada more than doubled last year for commercial insurance broker Marsh Ltd, an increase of 108%. “Demand for transactional risk insurance, predominantly warranty and indemnity or representations and warranties (R&W), but also tax and contingent liability insurance, surged during 2014,” Marsh said at the time.

In the U.S. and Canada, Marsh placed 154 transactional risk policies in 2014, up from 74 in 2013.

So far in 2015, buyer-side policies have been predominantly driven by sellers using them as tools to make the sales process more attractive, Marsh said on Friday. Essentially, sellers are offering to fund part or all of the buyer-side policy as an inducement to proceed with the transaction and to limit their post-closing liability.

“Auctions continue to drive the transactional risk market, with sellers increasingly sending out draft bids that include buyer side-coverage,” said Craig Schioppo, Marsh’s transactional risk leader for North America, in the statement. “We are also seeing corporate buyers becoming more interested in using this type of insurance to facilitate deals. We think this trend will increase as corporate buyers realize they need to use insurance to help get deals finalized to better compete with private equity buyers in auction situations.”

In the U.S. and Canada, the limits of the insurance placed was US$1.54 billion. Private equity policies consisted of 71% of the policies placed, and corporate policies consisted of 29%.

Demand for transactional risk insurance continued to grow during the first half of 2015, with an overall increase of 15% year-over-year in terms of limits placed by Marsh. Globally, the limits of insurance placed was about $4.05 billion, with private equity policies consisting of 73% of the policies placed and corporate policies accounting for 27%.

“The demand for transactional risk insurance on mergers and acquisitions (M&A) transactions continues to grow rapidly, as competition among acquirers continues to remain intense,” said Karen Beldy Torborg, global leader for Marsh’s Private Equity and M&A Services practice. “Dealmakers, both from the private equity and corporate space are increasingly using insurance capital to get deals over the line and we don’t see this trend subsiding anytime soon. This is true in the Americas, EMEA, and Asia-Pacific.”