M&A insurance to support transactions in emerging jurisdictions on the rise

Gareth Rees : Chief Underwriting Officer

Gareth Rees

Chief Underwriting Officer

As global M&A activity continues to accelerate in regional markets worldwide, the use of transactional insurance has simultaneously increased.  In the past eighteen months, a clear trend has developed within the M&A insurance space.  We have seen rapid growth in the use of Warranty & Indemnity insurance in jurisdictions that, until recently, would not have been likely candidates for transactional insurance products.

Liberty GTS’s professionals have underwritten complex deals where the target business, or material component of it, has been located in jurisdictions including: Croatia, Ghana, Jordan, Kenya, Kuwait, Morocco, Niger, Romania, Serbia, Turkey and Uganda.  Buyers and sellers in emerging M&A markets such as these are taking the lead from market practice in jurisdictions such as the U.S., Western Europe and the Asia Pacific region by leveraging M&A insurance tools to facilitate satisfactory deal terms and outcomes.

Global M&A volume is at a 10-year high, according to the most recent EY Global Confidence Barometer, based on the annual survey of nearly 3,000 executives across 47 countries.  Deal appetite is being driven by innovation, disruption and the need for growth as buyers reshape asset portfolios to achieve greater scale and operational efficiencies.  The Global M&A market in 2018 was $4.1 trillion, up 16% from 2017.  In 2018, cross-border deal activity remained extremely strong, reportedly representing nearly 30% of the total global M&A market, which is an increase of 23% totaling $1.2 trillion as of year-end, as stated in the JP Morgan Global M&A Outlook report.

Despite economic and political uncertainties in emerging markets, both corporate and institutional buyers are seeking risk-reward investment opportunities by increasingly looking further afield.  The executives running the deals will likely have used W&I insurance in more “traditional” markets, where the product is now regarded as a normal part of the M&A transactional toolkit. They are now driving greater use of the product when conducting transactions in emerging markets, often with the same top-tier professional advisors, also familiar with W&I insurance, that advised them in more mature markets.

W&I insurance can actually be used to mitigate one of the actual or perceived risks of doing deals in emerging markets, namely unfamiliarity with the local court system.  The dispute resolution mechanism in a W&I policy, whether court-based or arbitration, need not match the SPA so, if that provides for local dispute resolution, the W&I policy can be used by a buyer to ensure that any warranty claims are dealt with in a forum and jurisdiction with which it is comfortable and familiar.

For insurers looking to grow their books, while it is positive that use of the W&I insurance is expanding into emerging markets, care must be taken to enter new jurisdictions prudently.  That can be achieved by insurers instructing advisors familiar with both the W&I product and the local market so that cover and commercial terms can be adapted to reflect any specific risks associated with transacting in these emerging markets.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.

U.S. mergers & acquisitions market momentum continues

Hilary Weiss : Senior Underwriting Manager

Hilary Weiss

Senior Underwriting Manager

In 2019, the burgeoning U.S. mergers and acquisitions market is continuing to build upon last year’s momentum.  Deals are focusing on traditional customer-base expansion and diversification of products and services by forward-looking companies within leading commercial sectors.  Domestic market transactions are being fueled by corporate tax reform advantages, less stringent regulatory environments and available sources of new capital.

U.S. transaction value at year-end 2018 stood at $1.5 trillion, a 21.5% increase from deal values that totaled $1.2 trillion in 2017, according to FactSet M&A News and Trends Report.  With more deal volume at higher values, the U.S. M&A market faces not only increasing claims frequency but higher severity of potential loss.

Deloitte’s annual survey of corporations and private equity firms revealed that market activity in 2019 will remain strong as “79% of respondents that expect the number of deals to close” within the year will increase, as compared with 70% respondent growth projections reported last year.2 Yet, underlying factors within the U.S. market present uncertainties that may challenge the reach and cost of transactions in 2019.  U.S.-imposed tariffs could inflate the costs of completing transactions amid trade tensions.  Due to supply chain disruptions, prices of goods are on the rise, thus triggering competitive pressures.

The U.S. has become a sellers’ market for aggressive buyers seeking quality transactions.  Two overarching factors underscore the trend:  1) Available private equity capital; and 2) Buyers’ record level balance sheets.  Middle market entities, defined by annual revenues ranging between $50 million and $100 million, will most likely see the greatest level of activity.  The JP Morgan 2019 Global M&A Outlook report cites “corporate clarity” as a leading market driver, whereby corporate buyers are seeking to “unlock value and refocus on core assets,” further catalyzed by increased shareholder activism.3

The M&A insurance market has accelerated in the U.S. reflecting the trajectory of deal activity.  M&A insurance protects against unexpected perils or exposure to financial loss that could be devastating if a transaction goes awry.  Disputes can arise out of multiple transaction complexities, including regulatory and compliance issues, financial irregularities and tax liabilities, among others.

Historically, M&A insurance was geared to private equity firms engaged in middle market activity to address post-closing indemnification provisions.  Domestic corporations and the influx of investment by foreign buyers have today emerged as active purchasers of the insurance coverage.   Sellers can close the transaction with fewer contingent liabilities.  Buyers are assured of greater “collection certainty.”  Professional transactional oversight also can contribute to building executive confidence in the two most important factors impacting a successful outcome:  effective integration and economic certainty.

Liberty Global Transaction Solutions has been a key player in domestic and cross-border transactional insurance, with an integrated team structure to respond to buyers’ and sellers’ primary countries of operation, thereby improving service and efficiency.  Liberty Global Transaction Solutions is expanding upon that approach with a rapidly growing team of dedicated experts within the Americas and across the globe.  Throughout the global platform, the standards for providing M&A insurance remain constant – consistency in coverage, certainty of insurance company’s financial reserves, and continuity in delivering comprehensive coverage structured to protect client’s business interests.

 

  1. “FactSet M&A News and Trends,” 2018 FactSet Research Systems, Inc.; factset.com
  2. Deloitte, “The State of the Deal: M&A Trends 2019”; https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acqisitions/us-mergers-acquisitions-trends-2019-report.pdf
  3. “JP Morgan 2019 Global M&A Outlook: Unlocking Value in a Dynamic Market”; https://www.jpmorgan.com/jpmpdf/1320746694177.pdf

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.

Meet the Liberty GTS Claims Team

Simon Radcliffe : Head of GTS Claims

Simon Radcliffe

Head of GTS Claims

Nick Horsmon : Head of GTS Claims for Americas

Nick Horsmon

Head of GTS Claims for Americas

Nick Horsmon and Simon Radcliffe recently joined Liberty Global Transaction Solutions (GTS) as our new claims counsel.  Nick is based in New York and services all GTS claims in the Americas.  Simon is based in London and services all claims relating to Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) business.  In this article they tell us a bit more about the claims counsel role and the impact that their unique positions will have on the claims service that Liberty GTS provides.

Can you tell us a bit more about the claims counsel role?

Simon: The most notable feature of our role is that we are dedicated solely to servicing GTS claims.  It is unique in our industry and will provide our brokers and our clients with a single, consistent point of contact during the claims process.  We sit with and work closely with our underwriting teams, participate in underwriting training sessions, provide input on wordings and are well-informed about ongoing deal flow.  This set up is invaluable in the event of a claim as our entire team is able to work together to ensure a timely and considered response.  It is all part of recognizing that offering an exemplary, in-house claims service adds value throughout the lifecycle of our relationships with clients, from prior to inception of the policy, to the point of claim and throughout the subsequent claims handling process.

How will the role positively impact the claims service that Liberty GTS provides?  

Nick: Quite simply, our goal is to deliver best in class claims services. In doing so, we will fill a void in the market by providing a truly holistic claims service.  This could mean reassuring a first-time insured that has reservations about the use of transactional insurance solutions, or working flexibly and expeditiously with a client when a claim arises under particularly urgent or unconventional business circumstances.  We are also passionate about the M&A market and enjoy discussing trends with our brokers and clients to get ahead of potential issues before they arise. No matter the situation, we strive to add value to our clients throughout the entire deal process – an outlook that is simply unprecedented in our space.

What are you looking to do differently?

Simon: We will be looking to collaborate with the broking community to draw up a set of best practices that will define the level of service to expect from us during the claims process and against which our subsequent performance can be measured and judged.  We will also be sitting down with our clients and brokers at the end of the claims process to evaluate what went well from their perspective and what could have gone better so that we can learn from and adapt our behaviors and how we work going forward in order to improve the overall claims experience.

Nick: In my experience, claims professionals at other carriers and in other areas of insurance are often assigned a claim file with no prior knowledge of the insured and without a real understanding of why the policy was even procured in the first place.  As a result, many claims managers fail to truly appreciate their clients’ business concerns when assessing claims.  This can lead to unnecessary tension and, in some cases, to an adversarial process that discounts business sense and overlooks the common goals that are shared by a carrier and its insured.  By embedding us as dedicated claims counsel within, not separate from Liberty GTS, our team is designed to avoid this downfall.

What influenced your decision to join Liberty GTS?

Simon: The main draw for me was the opportunity to become part of a global, market-leading underwriting team that is determined to place claims service at the front and center of their client proposition.  I dealt with many of the MGAs and insurers that are involved in this class of business during my time in private practice and none of them had a genuinely dedicated M&A claims function.  I had long felt that this was a missed opportunity given the complex, time-intensive nature of M&A claims and the importance of dealing with them promptly.  It was very satisfying, therefore, to find that Liberty GTS felt the same way and in that sense they were an ideal fit given my views in terms of the value that such a role can add to M&A insurance products.

Nick: I chose Liberty GTS because it meant joining a global team with trusted leadership, an innovative vision, and the backing of an iconic company.  Furthermore, the opportunity to round-out my claims analytical skillset with underwriting strategy, and operations management was unmatched.  I couldn’t be prouder to be part of this incredibly talented and experienced team as it continues to grow and expand its role as a leader in the market.

What do you see as the main challenges involved in your role?

Simon: I think that one of the biggest challenges we face is changing the mindset of buyers so that they focus more on claims service when considering their choice of insurer – after all, the true value of a M&A policy lies in the ability of the insurer to deal with claims promptly when they arise and to honor them whatever their size.  This has never been such an important issue given the recent influx of MGAs and other new entrants into the market whose claim function and their ability to deal with an increase in the frequency and size of M&A claims and absorb losses is in many cases untested.  It is why Liberty GTS attach so much importance to claims and how we deal with them as demonstrated by our investment in the claim counsel role and our recent announcement of the payment of a full €50m policy limit claim.

Nick: At a broader level, I hope to fundamentally change the way in which business people view insurance claims. Many market participants have endured contentious claims battles in the past and expect the worst in terms of the professionalism and business acumen of claims professionals.  We pride ourselves on changing that mindset and, thanks to the support and vision of Liberty’s leadership, we plan to set the bar for claims teams in our industry.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.