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Global Transactional Risks Review and Outlook

May 8, 2024

The themes shaping the warranty and indemnity/representations and warranties, tax liability, and contingent risk insurance landscape.
Financial, Executive and Professional Risks (FINEX)|Mergers and Acquisitions

Welcome to our annual Global Transactional Risks Review, considering the themes shaping the warranty and indemnity / representations and warranties, tax liability, and contingent risk insurance landscape.

In the current business climate, where mergers and acquisitions remain a key driver of growth, it’s essential to have a comprehensive understanding of the risks associated with transactions. Our Review provides an in-depth analysis of the latest trends and challenges facing businesses, investors, and insurers in the transactional risks market.

The insights and opinions shared in this review are drawn from the extensive experience of our global teams in the transactional risks market. We hope that the analysis and commentary provided will help you to navigate the complexities of this rapidly evolving market and help you to make informed decisions that protect your business interests.

Warranty and indemnity/Representations and warranties

In this section of the full report we explore the latest themes, practices and conditions, offering insights into how insurers are approaching this complex area of risk. We also look ahead to 2024 and highlight the features that are expected to shape the market over the coming year.

Transactional risks market growth

Despite soft market conditions in 2023, investors remained engaged in transactional risk markets with less common structures such as minority investments and secondaries being increasingly present. While deal activity was lower overall (with a notable dearth in the mega-deal space), activity in the sub-100m (USD/GBP) range remained buoyant with competitive coverage terms provided by insurers hungry to retain market share.

A pullback in inflation toward the end of 2023 provided a sign of respite for deal teams, private capital in particular, who have been reluctant to pull the trigger in light of the cost of capital. This has resulted in an M&A market led my corporates and a welcome influx of new and less experienced users of transactional risk insurance. In some major European markets; France, Germany and Benelux WTW teams reported corporate acquisitions outstripping private equity activity, a trend also seen in Africa and Australasia where placements in which corporates were on both sides of a transaction out-numbered private equity transactions, highlighting both product awareness and an increasing corporate risk management prowess. Notable exceptions to this trend were Central and Eastern Europe and the Nordics where private equity continued its ascendency.

While M&A activity was lack-lustre in 2023, we have continued to see growth in the use of W&I insurance, particularly in fledgling European markets where the product was historically considered the purview of private capital.

Download the report for the full review on W&I and R&W.

Tax Liability Insurance

The dynamic nature of both tax legislation and international treaty law has meant that throughout 2023 tax markets remained robust in their application of capacity as did client interest in the product. In a similar vein to 2022, in 2023 some of the largest transactional risk placements were for tax insurance coverage on complex cross border placements. Insurer appetite remains strong, with insurance capacity being in excess of USD 1.4 billion for a single risk (or local currency equivalents).

Of particular note in the London market has been the steady flow of Indian tax risks (with insurer appetite expanding beyond the usual double tax treaty risks) as well as UK risks relating to insuring the future availability of carried forward losses. Across Europe regulatory considerations have also driven deal structuring with Pillar II being a particular area of client focus and insurers increasingly willing to cover such risks with growth in awareness and interest being noteworthy in Israel, Italy, France and Spain in particular.

Download the report for the full review on Tax Liability Insurance.

Contingent Risk Insurance

Here we explore the latest developments in the market regarding contingent risk and offer insights into the benefits of this type of coverage and how to manage exposure.

Insurers continue to differentiate their offering in contingent risk underwriting and there has been a notable uptick in marketing of products such as litigation insurance and IP cover both in the context of W&I and on a stand-alone contingent basis.

Claims Review

This section sets out WTW’s analysed claims data to provide specific insight into the types of loss that businesses are exposed to. Claims reported by clients from 2017 to January 2024 are included in this report. WTW manages W&I insurance claims in-house through our dedicated team providing both advocacy and advice and our review is based on the examination of a dataset of 500 claims notified by clients under GB, European, US, Australia and Africa policy placements.

Key takeaways

  • Tax events are the most frequently occurring event type. Although these claims are on average less costly than events in the commercial, legal and accounting categories, a high proportion do result in a payment.
  • The category with the largest total event cost and the second most frequently notified claim type is financial statements/accounting of the target company. A common scenario is a retrospective adjustment to the earnings before interest, tax and depreciation (EBITDA) of the target company. This in turn affects the purchase price of the target company if this was based on a multiple of the EBITDA, resulting in potential overpayment by the purchaser.
  • Commercial/customer events that relate to the day-to-day running of a target company’s business, such as property, customers or products. Of these subcategories, events related to products/services of the target company are the most frequently notified, and claims related to customers of the target company are the most expensive.

If the above has been of interest to you, please download the full Global Transactional Risk Review and 2024 Outlook. Do not hesitate to get in touch with a member of the team should you have any questions.


Alexander Keville
Practice Leader M&A and Private Equity, Global FINEX

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