M&A Claims Surge and W&I Market Growth to Record Levels: Study

;I insurance product. The use of warranty & indemnity insurance has hit record levels in 2024, according to a recent study by broker HWF Partners.

The study shows that claims related to mergers and acquisitions (M&A) have been on the rise lately, leading to an increased demand for warranty & indemnity insurance (W&I). In fact, W&I has grown significantly in the first half of 2024, based on the analysis of European insurers conducted by HWF Partners.

David Wall, managing director of HWF Partners, highlighted the rapid increase in claim numbers over the past year and mentioned that substantial settlements have been made on behalf of clients. A W&I policy covers losses that a buyer can claim against a seller for unforeseen risks that emerge after the completion of an M&A deal, such as under-declared VAT, undisclosed obligations, or title deficiencies.

Surprisingly, these policies typically cost less than 1% of the maximum payout limit, and over 4% of policies have had claims paid out. The flow of capital back to insured parties has shown no signs of slowing down.

The study examined data from 22 European insurers that have issued 15,080 W&I policies since January 1, 2016. Claim notifications were received on 11.64% of policies during this period. Larger transactions, with an enterprise value exceeding £1bn, showed a notification rate of 19%.

Claims have been paid out on 4% of policies reviewed, and the report noted that a quarter of successful claims were settled within six months, with 73% of claims paid within 18 months. This speedy resolution sets W&I apart as an alternative to uninsured transactions, where claims against sellers could take much longer to resolve.

The study also shed light on the practical aspects of W&I insurance. For instance, subrogation, the insurer’s ability to pursue a seller for reimbursing the payout in cases of fraud, was found to be rare, occurring in only 1.85% of claims with a payout to an insured party.

In conclusion, it’s crucial for all parties involved in M&A transactions to have confidence in W&I insurance products. The report’s detailed insights provide valuable data to help clients make informed decisions when utilizing W&I insurance.