Warranty & Indemnity (W&I) Market Update

Based on our growth and from conversations with the market we anticipate that the market generally has seen an increase in the region of 20%-25% in the number of policies placed (compared to 2012) and on a global basis you are probably looking at well over 750 policies.

2013 has been an incredibly busy year with little if any drop off in the enquiry or deal level throughout the year.

Interest in transaction insurance products has grown significantly, and we see this as a combination of a number of factors:

W&I Market Update

  • From where we sit we have the view that deal levels have increased (particularly in the last 2 quarters of 2013).
  • The knowledge of the product has increased as more people have experienced its successful use within transactions, which in turn has led to more people considering its use.
  • There are more people in the market presenting the product. With regard to this final item, the small teams of practitioners at brokers and insurers have been growing, established insurers have been strengthening their teams and “new players” have entered the market.

What this Bodes for 2014

This trend is going to continue in 2014, and we expect that there will be at least three new entrants into the insurance market.

Finally, one of the largest areas of growth for the product has been in the U.S. where not only Willis but other brokers and markets have seen an almost 100% increase in the numbers of policies placed. One underwriter put cover in place for 15 U.S. deals in the month of October alone.

While the fundamental profile of the policies is not going to change to any great extent, it will be interesting to see how the new insurers create a foothold for themselves and what impact this may have on pricing, policy structure, and the details of the terms and conditions.

We anticipate that buyer-side cover will remain the predominant product, but we are aware that interest in the more contingent policies that deal with tax or “known risks” will continue to gain ground with insurers, where they can offer creative ways to transfer balance sheet risks for target businesses.

Claims

Outside of the U.S. claims, statistics have proved difficult to gain detail on. However, we are aware of a number of sizeable claims (USD 50m+) that are in the market and for which insurers are currently responding to.

The impact of these potential losses is yet to be fully understood as they work their way through the various layers of insurance and reinsurance, but we are not aware that they are going to lead to an increase in rates for 2014, at least on a market basis.

It will be interesting to see if on a region or insurer basis, there is a fall out from the claims (either from a tightening of terms or repositioning on certain areas of risk), but with the new players joining the market we continue to be bullish that cover will be available at competitive terms for most regions.


Brian Hendry Brian Hendry is head of the M&A the FINEX Global Transaction Services Team at Willis.  He is a career insurance broker with more than 30 years’ experience, the past 15 years of which have been focused on transaction risk insurance. The Transaction Services Team is part of Willis FINEX Global, a division of Willis providing specialist advice and services to clients for Financial, Executive and Professional Risks. The Transaction Services Team develops traditional Warranty & Indemnity cover for all industry sectors as well as seeking new and innovative ways to mitigate risks arising out of corporate transactions.

This post originally appeared in Baker & McKenzie‘s global private equity publication, REBOOT Magazine.

Categories: Mergers & Acquisitions | Tags: ,

Leave a Reply

Your email address will not be published. Required fields are marked *