Airmic 2010: Insurance for M&As to rise

Chartis has forecast the number of warranty and indemnity (W&I) policies it writes will increase by more than 100% from 2009.

It follows signs of resurgence in the mergers and acquisitions market after the comparative down-turn in 2008 and 2009.

During the first half of 2010, there has already been a 50% increase in enquiries for W&I insurance compared to the same period in 2009, according to Aon and Chartis, who are both presenting at this year’s Airmic conference, titled: Influencing Outcomes, which begins today at the Manchester Central.

W&I cover can be bought by a seller to:strategically resolve deal breakers during negotiations; maximize sale proceeds; and provide protection from a claim for up to seven years.

Alternatively, a buyer may use it to: increase their financial protection in the event of a breach of warranty or tax claim; or differentiate themselves from other buyers in an auction situation.

Anka Taylor, director of Aon’s financial services group said: “Mergers and acquisitions are some of the riskiest ventures CEOs and boards can undertake, yet perversely the very people who know most about managing risks, are often only told of these deals once it is too late to purchase insurance. If the recent economic turmoil has shown us anything, it is that risk needs to be managed at board level, so bringing risk managers in to the board room is the logical next step.”

Andrew Graham, group underwriting counsel of Chartis mergers and acquisitions group, said: “Less than 1% of UK corporate transactions make use of warranty and indemnity insurance, yet approximately 20% of policies we issue result in notifications. The cost to buyers and sellers not covered by insurance is significant when you consider we are currently dealing with claims ranging from £5million to £50million.”