M&A activity Fuels Demand for Transactional Risk Solutions

The global mergers and acquisitions (M&A) landscape witnessed a meaningful upturn in 2024, with total transactions reaching $3.4 trillion. This represents an 8% increase compared to the previous year, which saw a decade-low figure. North America spearheaded this recovery, accounting for $1.4 trillion in deals. This surge in M&A activity has later propelled unprecedented demand for transactional risk insurance solutions across various markets.

Consider the recent acquisition of a tech startup by a larger corporation. Such deals, while promising, are fraught with potential risks, including unforeseen liabilities or breaches of warranty. Transactional risk insurance acts as a safety net, protecting the acquiring company from financial losses stemming from these risks.

A Competitive Landscape: Abundant Capacity and Stable Pricing

The North American transactional risk insurance market is characterized by intense competition and substantial capacity. Currently, nearly 30 underwriting firms are actively participating in the sector, providing a total available capacity exceeding $1 billion per transaction. The market has seen the entry of new players without any exits,further intensifying the competition among insurers vying for market share. This competitive surroundings has contributed to relatively stable pricing, benefiting companies seeking coverage.

Expert Insights on Market Dynamics

According to Craig Schioppo, global head of transactional risk for Marsh, last year marked a pivotal year for transactional risk insurance, with a notable recovery in global M&A activity and an increased recognition of the value of insurance solutions in managing transaction-related risks. This statement underscores the growing importance of transactional risk insurance in facilitating successful M&A transactions.

Schioppo further notes that, While geopolitical uncertainty has adversely impacted global M&A activity through Q1 2025, we remain optimistic about the continued growth of this market and its role in facilitating successful transactions across various sectors. This suggests that despite external challenges, the transactional risk insurance market is poised for continued expansion.

Pricing and Retention Trends in Transactional Risk Insurance

Reflecting the competitive landscape, transactional risk insurance pricing trends have exhibited “soft market” conditions as late 2022. By december 2024, primary layer representations and warranties (R&W) insurance rates had reached 2.9% of policy limits, a slight increase from 2.5%. However, some rate stabilization was observed in the latter half of the year. this indicates a potential shift towards a more balanced market dynamic.

Retention levels, which represent the amount the buyer must absorb before R&W coverage kicks in, have become more favorable. For transactions valued over $50 million, average initial retentions have fallen below 0.6% of enterprise value. Smaller transactions under $50 million averaged retentions around 0.7% of enterprise value. These figures are significantly below historical averages, providing buyers with greater financial protection.

“Given continued strong underwriting competition and firmly established buyer expectations, the lower retention environment is highly likely to continue in the short- to medium-term. However, the emergence of adverse claims could result in retentions trending toward historical norms over time.”

Deal Size and Sector-Specific Trends

The transactional risk insurance market experienced significant growth in deal size during 2024, with the median transaction value reaching $125 million, an 18% increase from 2023. The market demonstrated remarkable breadth across transaction sizes, with more then 50 transactions, or 7% of deals, exceeding $1 billion in value, while 43% of transactions fell below $100 million, highlighting the versatility of these insurance solutions across deals of various magnitudes.

In terms of sector distribution, the communications, media, and technology sector led the way, accounting for 135 deals, or 20% of insured deals. The energy and power sectors experienced a doubling in activity compared to previous periods, reflecting increased M&A momentum in this industry. This surge in energy sector deals could be attributed to the growing focus on renewable energy and the consolidation of conventional energy companies.

The widespread adoption of transactional risk insurance across all industries highlights its mainstream acceptance as a standard risk management tool in M&A transactions across the North American market.

Buyer profiles showed a relatively balanced distribution, with corporate and strategic buyers representing 55% of policies, while private equity firms accounted for the remaining 45%.

Claims Activity and Emerging Risks

R&W claims activity saw a substantial increase in 2024,with 309 transactional risk claims reported,marking a 21% increase from 2023. Financial statement breaches emerged as the most common issue, rising to 32% of total claims, underscoring the importance of thorough financial due diligence in M&A transactions. Insurers recognized $346 million in covered losses during this period.

This rise in financial statement breaches highlights the need for rigorous auditing and financial analysis during the due diligence process. Companies should invest in expert financial advisors to identify potential red flags and mitigate the risk of future claims.

Future Market Projections

Looking ahead, an increase in transactional risk insurance activity is anticipated, supported by an expected steady interest rate environment that should facilitate dealmaking. The stabilization of financing costs is highly likely to encourage more transaction activity, potentially driving further demand for insurance solutions that help manage deal-related risks.

though,global geopolitical uncertainties remain a potential factor that could impact transaction volumes and risk profiles. Events affecting international trade relations, regulatory environments, and economic stability may influence both deal activity and the types of coverage sought by transaction participants.

Despite these uncertainties, transactional risk insurance is expected to maintain its importance in North American deals, continuing to serve as a valuable tool for managing transaction-related exposures and facilitating deal completion in a competitive M&A landscape.

Projected Surge in M&A Activity

The M&A landscape is set for a substantial upswing. A recent EY-Parthenon survey indicates that approximately 56% of global CEOs plan to engage in M&A activities in 2025, a notable increase from 37% in September 2024. This optimism is driven by expectations of favorable financing conditions and pro-business policies. ([reuters.com](https://www.reuters.com/markets/deals/ceos-ramp-up-deal-outlook-under-trump-ey-survey-shows-2025-01-22/?utm_source=openai))

As a notable example, in early 2025, Blackstone acquired a significant stake in UK airports, and Alphabet purchased cybersecurity firm Wiz, highlighting the strategic moves companies are making to enhance their market positions. ([ft.com](https://www.ft.com/content/e3f4b1bc-bd95-4780-8e7a-b9bdcbb25a1e?utm_source=openai))

Expansion of Transactional Risk Insurance

In response to the anticipated M&A boom, the transactional risk insurance market is expected to expand. Marsh’s 2024 report highlights a 38% increase in insurance limits placed, totaling $67.8 billion, driven by a 33% rise in policies issued and a 31% increase in unique transactions. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

This growth underscores the critical role of transactional risk insurance in mitigating risks associated with complex deals, particularly in sectors like technology, healthcare, and renewable energy. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Competitive Dynamics and Pricing Trends

The influx of new market participants is intensifying competition among insurers. In 2024, nearly 30 underwriting firms were active in the North American transactional risk insurance market, providing substantial capacity. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

This heightened competition is expected to lead to more favorable pricing for buyers. Marsh’s report indicates a significant decline in pricing for primary layer Representations and Warranties (R&W) insurance across all regions, with North America experiencing a 14% decrease. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Though, insurers may adopt a more cautious approach to limit deployment due to increased claims activity on large insurance programs, perhaps leading to a tightening of underwriting conditions in the latter half of 2025. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

emerging Risks and Claims Activity

as M&A activity accelerates, the complexity of transactions is likely to increase, leading to a rise in claims related to financial statement breaches and compliance issues. In 2024,North America and EMEA saw increases in claims activity by 20% and 30%,respectively.([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

To mitigate these risks, companies should invest in comprehensive due diligence processes and consider engaging expert financial advisors to identify potential red flags and ensure compliance with applicable laws and regulations.([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Strategic Considerations for Stakeholders

Stakeholders should proactively adapt to the evolving M&A and transactional risk insurance landscape by focusing on the following strategies:

• Enhanced Due Diligence: Implement thorough due diligence processes to identify and mitigate potential risks associated with M&A transactions.
• Leveraging Insurance Solutions: Utilize transactional risk insurance to protect against unforeseen liabilities and ensure deal completion.
• Monitoring Market Dynamics: Stay informed about market trends and adjust strategies accordingly to maintain a competitive edge.

By adopting these strategies, stakeholders can navigate the complexities of the evolving M&A landscape and leverage opportunities for growth and risk mitigation. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Frequently Asked questions (FAQ)

What is transactional risk insurance?

Transactional risk insurance is a type of coverage that protects parties involved in mergers and acquisitions from potential financial losses due to unforeseen liabilities or breaches of representations and warranties. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

How is the transactional risk insurance market evolving?

The market is experiencing significant growth, with increased competition among insurers leading to more favorable pricing and expanded coverage options for buyers. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

what sectors are driving the demand for transactional risk insurance?

Sectors such as technology, healthcare, and renewable energy are leading the demand, as companies seek to mitigate risks associated with complex transactions in these industries.([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

What are the key risks associated with M&A transactions?

Common risks include financial statement breaches, compliance issues, and unforeseen liabilities that can impact the value and success of a transaction. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

How can companies mitigate risks in M&A transactions?

Companies can mitigate risks by conducting comprehensive due diligence, utilizing transactional risk insurance, and staying informed about market dynamics to make strategic decisions. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Did You Know?

In 2024, Marsh facilitated $67.8 billion in transactional risk insurance limits,marking a 38% increase from the previous year. ([reinsurancene.ws](https://www.reinsurancene.ws/marsh-reports-strong-growth-in-transactional-risk-insurance-market-in-2024/?utm_source=openai))

Pro Tips

To navigate the evolving M&A landscape effectively, consider implementing robust due diligence processes, staying informed about market trends, and leveraging transactional risk insurance to safeguard your interests.