The place does the M&A market stand going into 2022? – Report
The reports are also made later than in previous years. Howden’s 2020 Claims Report found that 90% of reports were made within the first 18 months of commencement of insurance, compared to 62% in the 2020-21 reporting period, with the proportion of claims reported after 18 months increasing from 10% to 38%. This can be driven by the insurance market offering longer warranty periods and giving policyholders more time to uncover problems. Howden M&A also reported an increase in tax claims, which typically benefit from longer warranty periods.
According to Howden, material contracts and financial statements remained two of the most frequently reported warranty breaches. However, the report showed a significant increase in notifications related to compliance and legal guarantees, with the rate of those notifications increasing from 3% in 2020 to 18.4% this year.
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Howden’s data showed that 74% of claims were resolved positively (57% resulted in a payment and 17% resulted in an erosion of the deductible, with the amount not exceeding the insurance retention). The number of validly rejected reports has risen from 13% to 26%, probably driven by the increased willingness of the insured to report to the insurer as a precaution.
Outlook for 2022
Howden M&A predicts the following trends for the next year:
- An increase in the absolute number of notifications
- Price adjustments with a disproportionate impact on the sectors with historically higher loss ratios
- M&A damage beyond the W&I insurance
- Increased level of difficulty
“2021 was an unprecedented year for M&A insurance claims,” said Drew Wardrope, managing director at Howden M&A. “The COVID-19 pandemic may not have resulted in the expected influx of claims or violations. However, increased transaction activity and the use of M&A insurance have led to an increase in claims reports. Price adjustments are therefore inevitable, especially at the branch level. “
“Looking ahead, the absolute number of notifications will continue to grow, particularly on policies that cover known issues,” said Anna Robinson, Head of Claims and Advocacy for Howden M&A. “At Howden M&A, we saw a year-over-year increase in deal flow and placed more policies than ever before, with these deals generating a record number of notifications. In response to the increase in reports, we look forward to expanding our claims team to ensure that our customers continue to receive high-quality, thorough and timely advice. “