Transaction insurance limits rise on back of strong M&A market

14 June 2018 2 min. read

Following a period of high M&A and divestment activity, companies are increasingly opting for transactional risk insurance policies. North America and Europe are the most active markets according to a new report from Marsh. Transactional risk insurance policies placed by the advisory firm surpassed $20 billion in 2017.

M&A activity soared across industries last year with total deal value exceeding $3 trillion for the third year running. Ample capital – thanks to private equity fundraising and healthy balance sheets – and low interest rates encouraged activity, although high competition for new assets put a dampener on the total volume of deals.

These are the conclusions from leading insurance and risk advisory firm Marsh in its latest Transaction Risk Report. It assesses the insurance market burgeoning around M&A activity, which has seen a growing demand for risk reduction advice and sale of insurance products. Marsh is part of the Marsh & McLennan group of consulting firms, which also includes Oliver Wyman.

M&A activity in 2017

The total value of insurance policies placed by Marsh increased by 38% from $14.6 billion in 2016 to $20.1 billion the following year. Both private equity and corporate investors increased their consumption of transactional risk insurance. In 2017 they split the market evenly, compared to 2016 when 54% of clients were PE firms and 46% corporates.

The rise in transactional risk insurance limits was due to both an increase in the typical size of a deal and a jump in the volume of deals in which insurance was bought. The number of transactional risk insurance policies placed by Marsh rose by 28% from 2016 to 2017, when demand exceeded 700. There was also heightened demand reported by the advisory firm for risk solutions – especially with regard to tax and healthcare compliance.

Risk insurance limits

Transactional risk insurance growth has been strongest in the US and Canada, which has also led to rising M&A activity. In the consulting space alone, 2018 has already been a strong year for mergers and acquisitions. This is especially true in the IT sector, which saw RSM expand its US footprint with the absorption of Seattle-based Explore Consulting.

Further south, Nashville’s leading management consultancy was recently snapped up by Ankura. Private equity firms have also played their role in catalyzing consulting M&A activity, with Great Hill Partners contributing almost $75 million to further the prodigious expansion of cloud consulting firm Reliam.