A maturing market is good news for buyers

12 January 2017

The mergers and acquisitions (M&A) insurance market continues to grow and mature, resulting in a much improved market for buyers.

The growth that characterized the sector last year has sustained into 2016, with new entrants from late 2015 and early this year managing to establish themselves in the market. 

Growth was greatest in the US, which is now the world’s largest market for M&A insurance. And while Brexit saw some deals shelved in the immediate aftermath of the referendum, foreign buyers are still attracted to the UK. 

Increased competition and expertise in the M&A insurance market has been good for buyers, reducing the overall cost of cover. 

At the half-year point, prices were 9.7% lower in 2016 than in 2015, with average rates down to 1.39% from 1.54% for the same period, last year. Both are likely continue to fall further as insurers seek to meet budgets. 

Policy retentions have also been falling, and are currently around 0.5% of deal value, with some real-estate transactions seeing zero retention rates. 

We have noticed that clients are buying more cover – average insured limit increased from 25% in 2015 to 27% in H1 2016. 

The use of M&A insurance continues to broaden. More and more sellers are initiating the use of M&A insurance early in the sale process, while buyers are increasingly using it as a strategic tool to gain an edge in negotiations.

Top tip for buyers

Growth in the M&A insurance market presents opportunities for innovation. There’s been a noticeable broadening of cover, and an increased appetite for known risks, such as tax and legal liabilities. This is driving the potential for innovation when it comes to cyber and environmental exposures. 

For further information, please contact Teresa Jones, Partner, Merger & Acquisitions on +44 20 7558 3257 or email teresa_jones@jltgroup.com