Mergers and Acquisitions Market Update Q1 – 2019

Your source of M&A insurance market trends and analysis.

Overview

• 2018 was the largest year for Aon in warranty & indemnity (W&I) insurance uptake to date, in Australia, New Zealand and globally – all indicators signalling that 2019 will maintain this momentum.
• The number of new insurers in the market has continued to increase driving competition between insurers to develop greater pricing efficiencies and more insurance capital available in the market than ever before.
• It continues to be a buyer’s market for W&I – good for corporate clients who are increasingly using the product, public companies going private, real estate funds and private equity (PE) exits and acquisitions.
• Requests and uptake for hybrid US and Australian disclosure style regimes when structuring W&I insurance programs have been prominent throughout 2018.

State of the Market

The uptake of W&I insurance on deals continues to grow globally. It has become an increasingly attractive proposition for corporates, public companies, real estate funds and PE clients. With new insurers entering into the Australasian region, this has driven a number of overall market trends in 2018, all being ‘client friendly’. For example:

• Pricing for W&I has become more cost effective than ever –plummeting rates for excess pricing (i.e. pricing for layers of insurance above the primary layer) has significant impacts on the costs of insurance, particularly on larger deals
• Primary rates remain low and steady – average premium rates in 2018 continued to be below 1% of the limit insured as larger programs are structured.

Average premium rates continue to fall and insurers continue to offer favourable policy coverage for clients. Additionally, tipping or lower retentions/deductibles were offered and purchased on half of Aon’s Australasia deals placed in 2018. Insurers are increasingly able to offer retentions that tip to nil, such that there is recovery from the first $ of loss. Clients are now electing more than ever to take up lower-than-before standard 1% retention, which is now a regular feature offered by most markets.