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Transactional threat insurance coverage market ‘poised for progress’


Like the dealmakers, the insurers of transaction liabilities also got the uncertainties triggered by the pandemic under control “fairly quickly”, says Castelluccio. After a brief hiatus in March and April 2020 when there was little business and not much underwriting, the transaction risk underwriters suddenly readjusted and re-offered insurance with exclusions for COVID-related business problems.

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“Over the past six to eight months, these exclusions have become much more nuanced, tailored and, in some cases, much narrower as different insurers have developed effective strategies for managing the risk,” said Castelluccio. “This rapid adjustment reflects a practice that is generally more common [transactional risk insurance] Market in recent years where underwriters have become incredibly demanding.

“Rather than excluding anything that might have to do with COVID-19 and a deal from their policies, the underwriters began to scrutinize industries and individual companies in much more detail, particularly with regard to their COVID-related risk management and due diligence. For example, we’ve seen an increased focus on companies that have taken out PPP loans or are in touch with the CARES Act or other government pandemic responses. Based on the answers to these questions, the insured will receive a policy with coverage that is tailored and specific to their needs and with a premium that they can conveniently pay. At the same time, insurers feel confident that they have not insured a black box of risk. ”

In recent years, transaction risk subscribers have also increased their appetites, both in terms of insuring deals in industries that were previously considered difficult to draw (e.g. financial services) and in terms of underwriting deals with complex tax and regulatory issues (e.g. business) in the field of renewable energies).

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“When you hear the terms transaction risk or transaction liability insurance, the most common product used is R&W insurance, but a lot of specialty insurance has emerged,” Castelluccio told Insurance Business. “Outside of the F&W guidelines, there are certain guidelines that cover certain risks – even known risks – as long as insurers can understand those risks. For example, there is a tax risk (which is probably one of the most popular specialty products) and a contingent liability risk in a litigation or government investigation. These guidelines tend to be much more tailored. The premiums tend to be higher (not surprisingly), and the limits can sometimes be much higher than you would see in an R&W policy.

“The tax policy that is being drawn up, for example, is very specific and covers very large potential liabilities. Companies use these guidelines to remove liabilities or reserves from their balance sheets. They are very useful tools for this […] I see this as a big area of ​​growth. It’s not a one-size-fits-all, and it certainly isn’t for everyone, but the coverage is there. “

In 2021, as dealmakers continue to grapple with the more uncertain economic outlook, Castelluccio expects filings to continue to be robust in the transaction liability insurance market. He said, “Despite some short-term problems on the road, whether political or regulatory issues, I think the M&A market and the transactional risk insurance market are well positioned for further growth.”

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