Marsh’s new report has found that merger and acquisition (M&A) volume in both the US and Canada managed to hit record highs during the second half of 2020, despite a significant downturn in the second quarter during the height of the pandemic.
The broker’s new “2020 US & Canada Transactional Risk Year in Review” report also noted that this increase in M&A volume corresponded with the growth of transactional risk insurance purchases during the same period. Marsh said that in 2020, its US and Canada transactional risk insurance practice managed to complete 584 insurance placements – representing an 11% increase from 2019.
In addition, Marsh also reported that it placed a record 1,041 primary and excess transactional risk policies – mostly representations and warranty (R&W) coverage – in 2020, which represents a year-over-year increase of 22% from 2019.
“2020 was a year of highs and lows for M&A, with low volumes in the second quarter followed by explosive growth in the fourth,” commented Marsh US & Canada transactional risk practice leader Craig Schioppo. “The corresponding expanded use of transactional risk solutions reflects the essential role they play in deal processes.”
Marsh prefaced in its report that while 2020’s figures confirmed that transactional risk insurance will continue to serve a critical role in the M&A marketplace, there remains several challenges. Those challenges include a continued increase in claims frequency and severity, rising prices, and the rise of pandemic-related exclusions.
The report also revealed that after years of being in decline, R&W insurance rates increased across Marsh’s portfolio by about 10% last year. It also discovered that the number of claim notices submitted to insurers from Marsh clients more than doubled in 2020.
“Increases in R&W claims frequency and severity are expected to continue in 2021 and beyond as the volume of transactions continues to grow,” said Schioppo, who added that Marsh expects rate increases in the short and medium term, though pricing pressure could be offset by the arrival of new insurers, the practice leader mentioned.