M&A insurance claims are rising: One in four deals over $1bn end in a claim

Courtney Goldsmith
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Workers Arrive At The Offices Of Troubled Insurance Company AIG
Insurance claims on M&A deals are on the rise (Source: Getty)

Risky deals are pushing up the frequency of merger and acquisition (M&A) insurance claims as a new study found one in four deals over $1bn (£779.7m) ended in a claim.

Overall, 18 per cent of all global representation and warranty policies written by the American International Group (AIG) during the 2011-2015 period resulted in a claim, the group found in a study on global M&A insurance claims that examined around 1,600 deals worth more than $400bn.

“The bigger and more complicated a deal is, the more likely there is an unknown liability lingering,” said Mary Duffy, global head of M&A insurance at AIG.

“We are paying sizeable claims, sometimes writing eight-figure cheques in different geographies.”

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More than half of all material claims (those incurring more than $100,000) during the period were $1m or more, with the highest topping $20m, AIG found.

Slightly fewer than 47 per cent of claims were between $100,000 and $1m, with an average payout of $300,000; 47 per cent were between $1m and $10m, with an average payout of $3.5m; and slightly fewer than seven per cent were more than $10m, with an average payout of $22m.

“A maturing market mixed with pressure to execute transactions quickly could be a leading factor behind the increase in frequency,” said Michael Turnbull, Americas M&A manager at AIG.

“At the same time, we’re seeing claims across the board in terms of severity, which means that the product is responding to a host of different situations.”

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The top five common breaches claimed were: financial statements, compliance with laws, discrepancies in a company's contracts, tax-related and intellectual property.

(Source: AIG)

Most claim triggers were steady year-on-year, but the "compliance with laws" category jumped to 15 per cent of alleged deal breaches compared to five per cent last year.

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