2015 GLOBAL M&A INSURANCE INDEX

Transcription

1 2015 GLOBAL M&A INSURANCE INDEX

2 JLT Specialty s 2015 Mergers & Acquisitions (M&A) Insurance Index provides up to date benchmarking data on M&A insurance. It analyses trends in policy use, considers how the expansion of the M&A insurance marketplace impacted on the terms and coverage available and looks at what to expect in 2016.

3 March % EXECUTIVE SUMMARY 2015 brought exceptional growth in M&A insurance use. New insurers began underwriting and many established players increased their capacity. Insured limits of up to $1bn are now possible for any one deal; almost double that of two years ago. Insurers reported annual increases in written premium of circa 45% over the previous year, which was itself record breaking. Despite this, premium rates remained stable. Real estate continues to dominate as a sector with yet more innovation in policy structuring. Those wishing to use M&A insurance now have more choice, more flexibility and access to a mature and sophisticated market that has a broad range of insurance solutions to offer vs % Average premium rate remained constant at 1.5% (of policy limit) 0.8% Average policy retention increased by 0.15% to 0.8% (of deal size) 25% Average insured limit remained consistent at 25% (of deal size)

4 2015 GLOBAL M&A INSURANCE INDEX 2015 KEY TRENDS & OBSERVATIONS STRATEGIC SELLERS The desire of sellers to achieve a clean exit is propelling the use of M&A insurance. Following the example of private equity, we saw a shift in the mind-set of management who sought to limit their liability (even when taking a material share of the consideration). 42% of deals insured in 2015 were initially seller-facilitated but ultimately 9 out of 10 policies listed the buyer as the named insured. SECTOR ACTIVITY Again, real estate dominated M&A insurance use by sector. 35% of policies placed by JLT M&A involved a real estate transaction. However, the gap in sector use is beginning to close as other industry sectors embrace the use of Warranty & Indemnity (W&I) insurance in the same way. CLAIMS UP? Insurers reported more claims being made, albeit that this was largely in line with the increased premium written. Several large claim notices ($100m+) have been lodged. Insurers are reporting claims frequency at 12% to 15% on the number of policies issued. It is too early to tell what impact this may have on costs, terms and conditions although we do not expect any material changes in A TURBULENT MARKET H witnessed substantial movement of key underwriting personnel as the new insurers started building teams. Due to a temporary shortfall in underwriters available to review deals, competition reduced and at the half year point W&I premiums had increased by 7%. However, new capacity alleviated the initial pressure on rates. Average premiums for 2015 remained consistent with BUSY YEAR END 2015 saw a similar end of year rush to 2014, with 32% of all JLT M&A s policies exchanged in November or December. In the same months of 2014 this resulted in a 10.6% increase in premiums. However, the growth in the market in late 2015 meant that most insurers remained open for business as usual and pricing remained stable. TOP 5 M&A INSURANCE USE BY SECTOR IN Real Estate Manufacturing IT/Technology Communications Retail & Consumer Food & Agriculture

5 March POLICY TYPE 2% 10% TOP REASONS FOR USE To facilitate seller clean exit. Buyer W&I Seller W&I Tax/specific risk To bridge general warranty gap concerns (financial and time). Where the solvency of the seller is in question. Bid differentiation in auction process. 88% To avoid the need to sue management that are rolling over. To ring-fence seller liability. Cross border deals. 8% 6% 2014 POLICY TYPE REAL ESTATE THE ADVENT OF NIL RETENTION JLT M&A has successfully negotiated a nil Buyer W&I Seller W&I policy retention structure on numerous real estate transactions in 2015, a structure that is currently polarising the M&A insurers. Tax/specific risk 86%

6 2015 GLOBAL M&A INSURANCE INDEX PREMIUM AS % OF LIMIT PURCHASED Average Premium Rate as a % of Policy Limit % 1.54% Financial Food & Agriculture Manufacturing Healthcare Real Estate IT / Technology Communications Retail & Consumer Transport & logistics Leisure & Hospitality Education Business Engineering, Building & Construction Electricity, Power & Utilities Average premium rates have remained constant at 1.5% of the limit insured. Factors influencing premium: Policy attachment point. Limit as a percentage of deal size. Jurisdiction. Scope of warranties. Sector.

7 March 2016 POLICY RETENTION AS A % OF DEAL SIZE Average Policy Retention as a % of EV % 0.80% Food & Agriculture Leisure & Hospitality Financial Healthcare Engineering, Building & Construction IT / Technology Communications Retail & Consumer Chemicals Manufacturing Education Electricity, Power & Utilities Transport & logistics Real Estate Business The average policy retention for JLT M&A deals in 2015 was 0.8% of deal size, a slight increase of 0.15% over 2014 (reflecting market turbulence in H1). This is notably below 1%, the level perceived by many as a market standard minimum. Real Estate remains the stand out sector with the lowest average policy retention of just 0.5% of deal size. Policy retentions for the engineering, building and construction sector remained highest at 1.3% of deal value (1.2% in 2014).

8 2015 GLOBAL M&A INSURANCE INDEX POLICY LIMIT AS A % OF DEAL SIZE Average Policy Limit as a % of EV % 25% Food & Agriculture Education Engineering, Building & Construction Electricity, Power & Utilities Real Estate Retail & Consumer Leisure & Hospitality Business Manufacturing Transport & logistics IT / Technology Communications Healthcare Chemicals Financial Average policy limit across all sectors remained consistent at 24.6% of the overall deal value. As deals decrease in size, the average policy limit increases as a % of the deal value. Limits purchased by financial parties are lower on average than for strategic / trade parties. A new trend in real estate deals is the request for limits of 100% of deal value to cover Title / Fundamental warranties. There is a complimentary real estate product offering called Legal and Title indemnities insurance.

9 March 2016 WHAT DOES 2016 HOLD? With underwriters settled into their new roles, we are starting to see increased competition. In the first two months of 2016, with large budgets to achieve and pressure to differentiate, we have seen policy retention levels of 0.5% (or as low as nil in the real estate sector) and premium rates fall below 1%. As well as a positive influence on pricing we are also starting to see further coverage enhancements and innovations emerge, including: Synthetic tax deed in a policy (where sellers are unwilling to provide in the sale agreement). Removal of general sale agreement awareness qualifications in the policy. Specific coverage clarity for Due Diligence (DD) items. Gross-up extentions for buyer W&I policy proceeds. US insurance precedent infiltrating UK deals including non-disclosure of the data-room and coverage of multiplied damages / consequential loss. Blended W&I cover to include such risks as environmental, title and cyber liability. With insurers hiring specific litigation, tax and accounting underwriters, there is a broadened and more sophisticated appetite for known risks allowing parties to overcome more unique roadblocks that could previously have killed a deal. The 2015 Global M&A Insurance Index is produced using JLT Specialty M&A insurance data gathered by JLT over the course of the 2015 financial year.

10 CONTACTS BEN CRABTREE +44 (0) TERESA JONES +44 (0) JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW Tel +44 (0) Fax +44 (0) JLT Specialty Mergers and Acquisitions team combines extensive transactional experience with a deep understanding of an evolving M&A insurance market. We create innovative solutions, delivered on time, tailored to meet the commercial needs of each deal. JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies. Our success comes from focusing on sectors where we know we can make the greatest difference - using insight, intelligence and imagination to provide expert advice and robust - often unique - solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. Lloyd s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No VAT No March