Liberty Global Transaction Solutions (Liberty GTS) has announced findings from its inaugural M&A claims study.
"Having issued more than 2,000 policies since 2010 and managed over 300 notifications of warranty breaches across the globe, we are in a unique position to uncover M&A claim trends that can help deal makers and advisors better understand and manage their exposure," said Liberty GTS President Rowan Bamford. "This is vitally important now as the M&A insurance industry grapples with four key challenges: an over-supply in capacity, a significant drop-off in deal flow, an increase in claims activity and the emerging risks caused by COVID-19."
Key study findings include:
- Impact of COVID-19 - While COVID-19 has yet to result in a noticeable increase in M&A claims activity, it is possible that the pandemic may result in certain types of claims becoming more common, such as those related to labor issues or key customer insolvency.
- Notifications are rising - There has been a noticeable uptick in notifications over the last few years, with about 19% of policies now receiving a notification. However, no more than 25% of these notifications result in actual claims - a statistic that has remained relatively consistent over the years, despite rising notification frequency.
- Smaller deals produce more notifications - Deals with an estimated value of $250 million or less are more likely to result in notifications and account for the largest paid claims, compared to deals valued at more than $1 billion. They have also resulted in the most pay-outs of policy limits.
- Notifications are being made sooner - Notifications are being made more quickly than in the past. However, there is a notable divergence when it comes to deal size, with most notifications on smaller deals being made in the first year of the policy period, while the majority of notifications on the largest deals happen in the second year of the policy period.
- Common breaches leading to notifications and claims - The most frequent notifications involve tax-related breaches, although many of these are filed as a precaution and rarely develop into substantive claims. Claims relating to breaches of financial statement warranties continue to be common, and the value of these claims can be significant. Claims relating to breaches of material contracts warranties - already common in the Americas - are becoming more frequent in other regions, making it the fourth most frequent breach type globally.
- High severity claims are still rare - Claims for an amount in excess of $10 million are relatively uncommon - they made up just 8% of notifications globally, although the Americas has seen slightly more of these types of claims compared to the Asia Pacific and Europe, Middle East and Africa regions.
- New claims trends are emerging - Recently, there has been a large number of claims relating to stock and inventory issues, as well as claims involving more niche issues, such as software licensing shortfalls and the failure to comply with health and safety legislation.
"We issued our first claims study during a year in which we have seen a great amount of uncertainty in the M&A space," said Bamford. "It's fitting that it comes at a time when potential insureds - with good reason - are focused more than ever on the strength of an insurer and its approach to claims."
About Liberty Mutual Insurance
At Liberty Mutual, we believe progress happens when people feel secure. By providing protection for the unexpected and delivering it with care, we help people embrace today and confidently pursue tomorrow.
In business since 1912, and headquartered in Boston, today we are the sixth largest global property and casualty insurer based on 2019 gross written premium. We also rank 77th on the Fortune 100 list of largest corporations in the U.S. based on 2019 revenue. As of December 31, 2019, we had $43.2 billion in annual consolidated revenue.
We employ over 45,000 people in 29 countries and economies around the world. We offer a wide range of insurance products and services, including personal automobile, homeowners, specialty lines, reinsurance, commercial multiple-peril, workers compensation, commercial automobile, general liability, surety, and commercial property.
For more information, visit www.libertymutualinsurance.com.
About Liberty Global Transaction Solutions
Liberty Global Transaction Solutions(GTS) is one of the largest global M&A insurance teams in the industry. With more than 60 specialists, we have helped facilitate over 500 M&A deals a year on average—successfully insuring thousands of transactions since our inception.
GTS offers specialized products and services to help facilitate M&A transactions for buyers and sellers, including Representations & Warranties (R&W)/Warranty & Indemnity (W&I) Insurance, Tax Liability Insurance and One-off policies created for individual contingent risks.
The foregoing is not professional advice nor legal advice, is provided for information only, and is not a substitute for consulting with a professional.