Program on M&A, RWI, and Transactional Risk Insurance: Claims, Coverages and Liabilities Highlights Maturing Industry with Room for Continued Growth

October 22, 2018 – Butler Rubin partner Jason Dubner offered these takeaways from the ACI conference on reps and warranties insurance held in New York on October 10-11, 2018:

  • In assessing the “Transactional Insurance State of the Union,” one broker remarked on the four-fold growth in the marketplace between 2014 and 2018, with the number of carriers/MGAs offering these products having increased from five to twenty.
  • Increasing competition continues to drive pricing and retention levels down, the number of “no-indemnity” deals (23% in 2017 at Aon) up, and result in more favorable terms for insureds, such as by narrowing exclusions (e.g. wage/hour litigation and improper healthcare billing exposure may not automatically be excluded).
  • Underwriters reported an increasing use of the product by strategic buyers, generally resulting in less third-party diligence on which the underwriters can rely, but more insight from individuals with industry expertise.
  • Underwriters also noted an increasing use of reps and warranties insurance in certain industries, e.g., (1) oil and gas, (2) real estate, and (3) healthcare, where rates on deals have fallen from 3-5% to 1-2% of policy limits.
  • Claims representatives described the largest categories of reported breaches in the US market as related to representations concerning (a) compliance with laws, (b) accurate financial statements, and (c) the ongoing existence of material contracts, with an increasing percentage of claim notifications (33%) coming within the first six months after policy inception.
  • Claims studies also showed the size of payouts increased modestly with an average settlement of $4M, with most payouts ranging between $1M-$10M.
  • Reinsurance representatives estimated that today approximately 15 reinsurers actively support these products, providing roughly 50% of the capacity to the $2-$2.2B worldwide market.