Revealed – what’s behind global M&A insurance claims trends?

A new report from Liberty Global Transaction Solutions (GTS), part of Liberty Mutual Insurance, shines a light on current global M&A insurance claims trends.

The Liberty GTS 2022 Claims Briefing includes detailed information about the types of M&A deals and industries most likely to involve a claim, as well as discussing other important trends gleaned from GTS claims data between Jan. 1, 2019, and July 31, 2022.

Key findings include:

The frequency of claims being reported is down slightly, with risks bound in 2019 currently running at 16% compared to a historical average of about 21%. The widely anticipated post-COVID claims surge did not materialise
Mega-deals (over $1 billion) have the lowest claims notification frequency in Europe, the Middle East and Africa, and the Americas
Deals with an estimated value of $250 million or less accounted for 64% of paid and reserved claims by value
Instances of multiple notifications have more than doubled since 2019, rising from 10% to 24.5%. This trend is most pronounced in the EMEA region, primarily thanks to increased awareness among insureds of their notification obligations

“Our annual claims briefing always gives an interesting insight into developments in the global M&A sector,” said Rowan Bambord, president of Liberty GTS. “There was some uncertainty as to the impact the COVID-19 pandemic would have, but the expected surge in claims post-pandemic has not occurred. This underscores the strength of M&A dealmakers in effectively judging the risk of individual M&As during the 18 months when COVID-19 caused major disruptions to due diligence and pricing.”

The report also examined the most common causes of claims. Among its findings:

Tax-related matters accounted for a large number of notifications: 36% in the Asia-Pacific region, 34% in EMEA and 17% in the Americas. While most of these notifications are precautionary and are received within 24 months of policy inception, there has been an increase in the number of notifications involving large ($10 million and above) tax-related issues
Accounting and financial issues account for 29% of high-severity and 32% of medium-severity claims despite making up only 11% of total notifications over the last 18 months
48% of non-tax-related notifications involved a third-party claim. The majority of those involved either employee-related or intellectual property-related disputes
Economic headwinds such as inflation, potential recession and supply chain disruption are likely to spur heightened risks around certain issues such as undisclosed price increases, fraud, and accounts receivables

“This year, tax-related issues continued to be responsible for a large number of notifications, but on the non-tax side we are seeing a significant increase in third-party claims,” Bamford said. “This is quite likely to be due to the increased litigation threat faced by corporations as businesses explore all means of generating revenue when facing economic headwinds.

“Going forward, sellers will need to take into account ESG-related issues as buyers now expect them to give specific warranties on these issues. All parties in a transaction also face challenges from global economics. Our underwriters remain ready to help clients navigate transactions through these turbulent times.”