Newsroom / Risk Management
M&A activity is leading to a raise in warranty and indemnity insurance

According to Deloitte in their latest M&A Index the first half of 2015 emerged as one of the strongest for M&A activities, with more than $1.8 trillion worth of deals announced, a 22% increase over the equivalent period in 2014.

When reflecting upon these levels of activity one has to consider the global transaction insurance risks that it has created. Looking back to 2014, the related insurance market was estimated to be valued at a billion dollars with over 1350 policies written. In line with the Deloitte report, 2015 is seeing a higher uptake in the use of the product, which will undoubtedly see the market size rise again. Indications are that the number of policies written has increased by over 200% with Europe accounting for around half of those written globally.

Lockton Companies, one of the world’s largest insurance brokers has long experience in this sector and reflecting on this strong trend has noted an increasing recommendation by law firms that Warranty and Indemnity insurance is taken out to help “oil the wheels” of the transaction process. Clifford Chance recently estimated that in 2014 failed deals led to $221 billion of “lost cost”.

Looking at these trends in more detail Lockton Partner Neo Combarro, who heads up the their team observes: “Warranty and Indemnity insurance can help bridge the gap between a buyer and seller and benefit both with the policy helping protect against financial loss as result of a breach of warranty. We are now seeing the W&I market become increasingly competitive as more entrants come into it on both the broking and underwriting sides. Whilst competition is generally good for clients, we are definitely witnessing ours looking for us to provide much more depth beyond our core broking expertise, having significant legal and underwriting understanding on board too.”

What does this wider expertise achieve for them? Neo Combarro responds: “Our clients are increasingly looking at complex, cross border transactions and with the growth in 2015 need us to have the expertise on board to understand difficult legal issues and put together multipart programs of insurance to help difficult deals get over the line and of course protect their interests surrounding the myriad of uncertainties that exist around them.”

Picking up upon this last point, he adds “We looked carefully at the skill-sets required and been bringing in new members to the team with much broader expertise. For example, this year we have recruited Tim Davidson, previously an underwriter at Ironshore and specialist solicitor, Laurence Dace who has joined us from law firm Clifford Chance. With this diversity of expertise we are able to look at deals from every expert perspective, delivering tangible benefits to every one of our clients.”

Read an article by the Post. 

    
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