Transaction Liability Insurance Claims Study

14 October

Transaction Liability Insurance Claims Study

Mergermarket is pleased to present the Transaction Liability Insurance Claims Study, published in association with Aon.

Last year was one that no one could have anticipated. At the start of the COVID-19 pandemic, there was an unprecedented global impact on the M&A market, which in turn affected the representations and warranties insurance business. While the uncertainty wrought by the pandemic led to many transactions initially being put on hold as they were re-evaluated or re-negotiated, the claims activity on representations and warranties policies never really slowed.

Key findings include:

  • As of the end of 2020, representations and warranties insurers paid more than $500 million to Aon clients in North America since 2013, with almost $375 million of that amount being paid in 2019 and 2020.
  • 28% of tax policies placed between 2013-2020 had a pre-claim notice of a general audit submitted by the policyholder. Notice of a formal claim (indicating a targeted review of a covered tax position arising from the audit or the beginning of a formal contest with the tax authority) was submitted on 7% of policies.
  • Insurers reported paying 76% of representations and warranties claims on policies between 2013-2020 on a dollar-for-dollar basis, while 24% were paid on the basis of applying a multiple to damages. Half of the insurers surveyed believe that there has been a rise in the number of claims seeking multiplied damages in recent years.
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