Record high M&A insurance payouts in 2024 driven by representations and warranties claims

M&A insurance claims payouts have seen a significant increase in recent years, reaching a record high in 2024, according to a recent study conducted by Aon. The research sheds light on the rise in claims related to Representations and Warranties (R&W) insurance, also known as Warranty and Indemnity (W&I) insurance.

In the last three years, Aon’s North America claims team has assisted in processing over 100 paid claims for clients. In 2024 alone, clients in North America received a remarkable $300 million in M&A insurance claims, with an average payment of $5.5 million. The primary reasons for R&W claims in this region included breaches of warranties concerning compliance with laws, tax issues, and material contracts.

On the other hand, the study shows a substantial increase in claims notifications in Europe, the Middle East, and Africa (EMEA) with a 26% rise in 2024 alone. EMEA accounted for over 35% of all paid claims for Aon clients in the region. The most common driver for W&I claims in EMEA was breaches related to tax warranties, while the largest paid claims were for breaches in financial statements, compliance with laws, and material contracts.

In the Asia Pacific (APAC) region, certain prominent trends have emerged, including a diverse range of categories of W&I breaches being claimed, particularly in Asia. This includes a growing number of regulatory, litigation-related, and disclosure-related claims. Notably, Australia and New Zealand (ANZ) experienced a significant number of disclosure-related breaches, making up almost 30% of W&I claims in the region.

India-based risks accounted for more than 30% of all Asia claims related to W&I and tax liability policies in 2024. Researchers noted that these tax risks were a result of both cross-border treaty issues and strictly domestic Indian tax matters. The top drivers for W&I claims in APAC were breaches related to material contracts and legal compliance, tax, and license permits.

Overall, the study highlights the growing trend of M&A insurance payouts and the various factors driving these claims in different regions. With an increase in claims activity related to R&W insurance, it is crucial for businesses engaging in M&A transactions to be aware of the potential risks and liabilities involved. Understanding the common drivers for claims can help organizations better protect themselves and navigate through the complexities of M&A insurance.