An insurance cover you have probably never heard of
Transactional risk insurance is gaining traction as a go-to solution for mitigating risk and boosting deal certainty in global mergers and acquisitions. Brokers keen to expand their product offering could do well to page through Marsh’s 2024 Transactional Risk Insurance Year in Review report for ideas.
Wait, what insurance now?
If your gut reaction to this opener is ‘what insurance now?’ then you are not alone.
It turns out transactional risk insurance is a catch-all term for a set of insurance products that protect parties involved in merger and acquisition (M&A) transactions from the financial fallout of something going wrong after the transaction is signed. You will encounter three covers or types of insurance in this space.
First, warranty and indemnity (W&I) insurance to protect buyers and sellers from financial losses arising from breaches of representations and warranties made during a transaction. Second, tax liability insurance that is designed to offer cover for identified tax risks related to a transaction or historical operations, such as disputes with tax authorities. And third, contingent liability insurance which protects against known legal, regulatory, or other contingent risks that may affect the transaction.
Claims under W&I policies have remained relatively stable over time, with Marsh reporting that fewer than one in five claims notifications resulting in a paid loss in 2024. However, claim severity has increased slightly, suggesting the importance of robust due diligence and carefully negotiated policy wording. The majority of notifications relate to financial statements and tax breaches, aligning with broader M&A risk concerns globally.
A strange ‘size of market’ measure
Transaction insurance is big business. Marsh placed global transactional risk insurance limits of USD67.8 billion in 2024, issuing 2750 policies across 1600 unique transactions. In the same 12 months, Marsh secured a total of USD330 million in insurance coverage for deals in Africa with a mean premium rating of just under 2.2% of the insured amount. Placement costs have fallen by more than half compared to the mean premium rating for transactions in the region in 2021.
As an aside, this type of insurance cover is easier measured and reported on from an exposure or liability perspective rather than the gross written premium (GWP) metric that local industry stakeholders are used to. Marsh also reported a growing appetite for using transactional risk insurance in mid-market deals, or transactions valued below USD100 million. This trend is notable across Africa, where dealmakers are increasingly relying on insurance to address liability gaps, reduce escrow requirements, and unlock capital efficiency.
The global insurance broker and risk adviser noted a 55% increase in quote requests for M&A insurance linked to transactions on the continent since 2022. “Demand for M&A insurance remained strong, with Africa accounting for 41% of all M&A insurance policies placed by Marsh McLennan’s MEA practice on closed transactions in 2024,” said Luke Sutton, Marsh Head of Transactional Risk, Middle East and Africa.
South Africa leading the way
According to the research, there are more than 10 insurers that are consistently underwriting transactions in South Africa, with some limited sectoral exceptions. There are a smaller number of insurers underwriting transactions elsewhere in Africa. In 2024, Marsh advised on M&A insurance placements for transactions in Nigeria, Egypt, the Democratic Republic of Congo, Zambia, Gabon, Kenya, Uganda, Botswana, and South Africa.
While capacity is broadening, the report also cautioned that underwriters remain selective. Insurers generally prefer jurisdictions with legal certainty and familiar regulatory regimes. That said, underwriting timelines have shortened considerably, with 2024 seeing a 30% year-on-year drop-in average time to bind, pointing to better market understanding and increased deal flow predictability.
There is quite a disparity between the M&A deal volume and values versus the uptake of this niche insurance cover in the region. To illustrate, the report confirmed strong support for M&A insurance despite both the aggregate deal volume and deal value for Africa dropping by 29% and 12% respectively in 2024, compared to 2023.
The distribution of Africa closed transactions spanned Sub-Saharan Africa (67%) and North Africa (33%). And according to the report, the deal value of transactions for which Marsh placed transactional risk coverage was USD2.7 billion, around 22% of the reported aggregate deal value for all closed deals on the continent in 2024.
More insurers willing to underwrite deals
Marsh reported a rising share of investment from outside the continent as a feature in two-thirds of the placements it was involved in. “The rising share of investment is indicative of Africa’s growing integration into global supply chains and capital flows, driven by sectors like energy, mining, and agriculture,” Sutton said. “This growth indicates growing maturity in regional transactions and a substantial rise in the number of insurers willing to underwrite these deals.”
It can be tricky to forecast M&A deal flow, but the outlook seems net positive. In its report, Marsh noted that global M&A activity would pick up momentum in 2025 and that the MEA was expected to play an active role in key investment frontiers. “We anticipate that the growing demand for insurance solutions, particularly in sectors like technology, consumer products, and energy, will continue to drive opportunities in the market as the economy further diversifies and matures,” Sutton said.
The rationale for insurance covers for M&A is heightened in the context of a dynamic market dominated by state-sponsored buyers and sellers. As the report concluded: “M&A insurance is expected to remain a tool for dealmakers in 2025, providing protection against liabilities and facilitating smoother transactions.” A wider uptake of this type of cover is indicated in a world where contractual recourse is rare, and confidence in transactions remains key.
Is this an opportunity, or just an interesting read?
The data suggest there are growing opportunities for brokers and corporate advisers to educate clients about risk transfer strategies in dealmaking. Transactional risk insurance is no longer reserved for mega-deals or developed markets; it is becoming commonplace in cross-border and mid-market African M&A transactions.
Writer’s thoughts:
Most of the intermediaries FAnews interacts with know their way around health, life, and non-life insurance; but we have never heard any of them discuss transactional risk insurance. Have you ever sold this type of cover? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
