The M&A insurance sector will continue to ‘evolve and persevere’ despite challenging economic conditions, predicted the report

Last year was “turbulent” for global mergers and acquisitions (M&A) insurance providers, despite a record-breaking year in 2021.

According to Gallagher Specialty’s Global M&A Insurance 2022 Review and 2023 Outlook report – published today (5 January 2022) – claims for M&A insurance were “widespread” in 2022 and almost all warranted areas have now been claimed against.

The report added that while the impacts of the global Covid-19 pandemic eased at the beginning of 2022, other political and economic events such as the Russian invasion of Ukraine forced businesses planning to carry out M&A to “reassess some investments”.

A decline in the total number of global M&A deals also saw insurers competing for more deals than they had to in 2021, when M&A was more common.

As a result of this, Gallagher Specialty said that premiums had dropped slightly in 2022 while coverage widened.

Despite this, however, the report explained that “opportunities for M&A – and therefore for M&A insurance – have and will continue to rise even during a downturn”.

Using the UK as an example, the report showed that the current economic situation – and relative strength of the pound versus the dollar – created a situation by which the number of inbound deals from US private equity funds “increased markedly towards the end of 2022”.

In the UK, average premium rates for M&A insurance fell from 1% in 2021 to just under 0.9% in 2022.

2023 outlook

Despite challenging economic conditions around the world at the beginning of 2023, the report added that it believed “the M&A insurance sector will continue to evolve and persevere, despite the M&A outlook”.

However, it did admit that “the beginning of 2023 is forecasted to be slow for M&A activity” across the globe, in large parts because of the increased cost of borrowing and an “impending global recession”.

Positivity can be taken from the outlook of investment banks and private equity advisors, however, which the report said were predicted that M&A would increase in 2023 – especially in the energy and renewable sector.

The use of warranty and indemnity, tax and contingent risk insurance has also become an “integral part of all deal processes”, providing further light at the end of the tunnel for M&A insurers.