M&A Transactional Risk Report | M&A and Claims Trends

Marsh experienced its second busiest year on record, globally placing transactional risk insurance limits of US$59.3 billion on over 2,200 policies across 1,438 unique transactions — representing over US$420 billion in aggregate enterprise value. While lower than the levels of 2021, this is significantly higher than the US$46.8 billion in limits placed by Marsh in 2020.

M&A transactional risk insurance placements in 2022 remained resilient in Asia

Global macroeconomic and geopolitical pressures weighed heavily on overall M&A activity in Asia in 2022. The effect was most pronounced in North Asia, mainly due to foreign exchange volatility for dealmakers in Japan and South Korea, Greater China’s pandemic controls, and rising interest rates across the region.

In spite of the challenging circumstances, transactional risk insurance placements in 2022 remained resilient, helped by the continued stability of Southeast Asia’s M&A market and the strength of the market in India. Overall, closed deal counts decreased only slightly — by 12% — compared to 2021’s record-breaking levels, total limits placed grew by 35.6% over the previous year, and the combined number of primary and excess policies placed by Marsh Asia increased from 197 in 2021 to 205 in 2022.

Average premium rate for Asia increased slightly from 2.25% in 2021 to 2.32% in 2022

As with Marsh’s experience in EMEA, this average was a blend of an elevated pricing environment during the earlier part of the year that shifted downwards in the second half. This change was mainly due to reduced deal activity easing constraints on underwriting bandwidth and increased competition between insurers for engagements throughout the region.

Expanding market capacity for Asia Warranty and Indemnity (W&I) risks

Asia has traditionally been relatively underserved, in terms of dedicated W&I insurance capacity; we started 2022 with only six insurers having underwriters based in the region and core appetites for Asia transactions.

Over the course of 2022, insurers (such as Mosaic Insurance, RiskPoint, and Volante Transaction Services) made new investments in the region, with a view to joining the incumbents on the ground. At the same time, there was an increase in global appetite (primary and excess) for transactions in Asia. We expect a significant expansion in available market capacity in 2023, with limits in excess of US$550 million to be generally available for a single transaction, thus reducing the need to turn to non-core insurers in EMEA, whose appetites have tended to be more selective.

Read the full report for insights and trends on Asia and the region’s individual markets.

Asia saw the highest number of claim notifications ever recorded in the region

Asia’s total claim notifications rose approximately 30% compared to 2021. This increase, however, was exclusively driven by several deals recording multiple claim notifications during 2022. Analysis of the rate of deals receiving at least one notification on their policy showed that the claims rate remained steady in 2022, at around 10%, compared to 11% in 2021 and 9% in 2020.

Litigation warranty breaches became the leading category of breach across Asian warranty claims filed in 2022, accounting for 55% of all claims filed during the year. For comparison, litigation warranty breaches accounted for around 7% of all claims made between 2017 and

2021. The majority of these filings also related to concurrent breaches of other warranties, including those relating to financial statements and tax. The catch-all approach of filing a claim under multiple categories of breach, including litigation, featured in half of the claims made in 2022. Therefore, it is too early to determine whether this is a trend or an anomaly, and we will continue to monitor the data.

Among the claims payments made in 2022 was the largest W&I claim payment recorded by

Marsh in Asia, concerning a US$11 million compliance breach in Japan. The breach event and loss was verified, adjusted, and paid within seven months of the date of notification, making the process seamless and efficient for all involved.

Read the full report for the outlook for 2023.