Global transactionalrisk insurance claims
report 2023

Contents
01
02

03
04

Introduction

05

Global snapshot

06

Global trends

07
08

North America analysis

EMEA analysis

Asia Pacific analysis

Trending topic

Conclusion

1

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Global transactional risk insurance claims report 2023

Introduction
The increased adoption of transactional risk
insurance as a tool for parties to offload risk
in mergers and acquisitions (M&A) has led to acorresponding rise in claims.
The Global Transactional Risk Insurance Claims Report 2023 focuses on claims madeagainst representations and warranties (R&W) policies — also known as warranty andindemnity (W&I) policies — reported and paid in 2022. This year’s report shows how
the claims landscape continues to evolve.

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GlobalGlobal transactionaltransactional risk
risk insurance
insurance claims
claims reportreport 2023

Global snapshot
In 2022, claim notifications increased 25% over 2021.

The average time to notification increased across all
regions.

The percentage of financial statements claims decreased
significantly, while the percentage of claims related to tax,
compliance with laws, and litigation increased.

Marsh insureds received over US$232 million in claim
payments in 2022.

The bulk of amounts paid in 2022 came from financial
statements breaches notified in previous years.

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Global transactional risk insurance claims report 2023

3

Global trends
M&A activity reached an all-time high in 2021, leading many in the transactional risk insurance
industry to predict that this would result in significant claims activity in 2022. While there has beena substantial increase in global claim notifications, the expected surge in claim notifications incorrelation with policy inceptions has not yet materialized.
Although the number of claim notifications in 2022 was 25% higher than in 2021, this was still
below the number of claims reported in 2020. The percentage of insured deals that received a claim
varies regionally, with North American deals receiving claims at more than twice the rate of deals
in Europe, the Middle East, and Africa (EMEA). But globally, we have historically seen approximately
14% of insured deals receive a claim. If this trend persists, we anticipate claim notifications
continuing to increase in line with the higher number of insured deals that closed in recent years.

01| Global claim
notifications

02| Percentage of transactions
with a claim according topolicy year1

344

2018

2019

2020

2021

2022

21%

14%

8%

4%

8%

6%

6%

3%

11%

15%

14%

9%

14%

11%

8%

4%

North America
303

19%
EMEA
9%

284

APAC
16%
Global

243

2019

2020

2021

14%
2022

1P
 olicies closed in 2020-2022 will likely receive additional
claims, and we expect the final percentages for those
years to be higher.

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Global transactional risk insurance claims report 2023

In 2022, the time from policy inception to claim notification was longer than in prioryears. In contrast to the period between 2019 and 2021, when insureds reported
49% of claims within one year after policy inception, in 2022 the percentage dropped
to 40%, with all regions showing reductions in claims notified within six months. As
a result, nearly all other timeframes saw an increase, the largest being for claims
reported between 24 and 36 months. This shift may be due to the drop in claims
notified during 2021, when insureds were more focused on recovering from the
COVID-19 pandemic.
The longer time from policy inception to claim reporting sheds light on the value ofthe product. Our data shows more than 60% of claims in the APAC region came morethan 24 months after policy inception. Since seller indemnities often expire after one
year, if the majority of claims continue to arise after the typical indemnity period,
R&W policies will provide significant value to insureds who would otherwise have norecourse to recover losses.

03| Time to notification (2022)
6%

Less than 6 months
6-12 months

13%

12-18 months

16%

18-24 months
24-36 months
More than 36 months

27%

15%

23%

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Global transactional risk insurance claims report 2023

Tax, compliance, and financial statements breaches have remained the top three typesof breaches since 2019, although their proportion of overall breaches have changed.
Tax breaches were the most common in the period between 2019 and 2021, making
up 21% of all breaches; the percentage of claims asserting tax breaches increased
to 25% in 2022, which reflects a significant increase in tax claims in the EMEA region.
In 2022 we also saw a significant increase in claims asserting compliance with laws
breaches, largely coming from North America, comprising 17% of all claims. Financial
statements breaches continue to be common, though they represented only 13% ofclaims in 2022, a significant decline from prior years, with a decrease registered in all
regions. This may be due to insureds taking longer to notify, especially consideringthat financial statements claims are complex and sometimes difficult to uncover. We
will continue monitoring whether this trend perseveres.

04| Types of breaches
2019-212022

Difference

Tax

21%

25%

+4%

Compliance

12%

17%

+5%

Financial statements

20%

13%

-7%

Litigation

7%

13%

+6%

Material contracts

11%

8%

-3%

Intellectual property

5%

5%

0%

Operations

3%

5%

+2%

Employment

10%

4%

-6%

Environment

5%

4%

-1%

Fundamentals

4%

2%

-2%

Other

3%

5%

+2%

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Global transactional risk insurance claims report 2023

05| Claimed losses (2022)

2

7%

Less than US$1 million

7%

Between US$1 million
and US$5 million
Between US$5 million
and US$10 million

23%

Financial statements, material contracts, and compliance with laws breaches produced
over 82% of all claim payments in 2022, with payments for financial statements
breaches comprising nearly half of the total. Since financial statements and material
contracts breaches comprised a smaller percentage of claims in 2022 compared tohistorical averages, we will be monitoring whether the reduction leads to smaller
amounts being paid. We will also be monitoring whether the increase in compliancewith laws claims leads to a corresponding rise in claim payments for those breaches.

06| Amounts paid by breach type (2022)

Greater than
US$10 million

63%

Financial statements

46%

Material contracts

19%
17%

Compliance with laws

The aggregate loss amounts claimed in notifications made in 2022 totaled nearly
US$500 million. Most claimed losses were less than US$1 million, with 7% exceeding
US$10 million. While the average loss amount was US$3.3 million, loss amounts varied
significantly based on breach type and deal size. Nearly 50% of the total claimed loss
amounts came from financial statements breaches, despite representing only 13% of
the total claims.
Marsh clients received over US$232 million in claim payments in 2022, a significant
rise over prior years. With the increasing number of policies and claims, we expect acorresponding increase in the number of claim payments. The amounts paid, however,
may not follow a straightforward trajectory, as loss amounts do not depend on thevolume of M&A transactions or claim notifications.

2 These figures do not account for claim notifications where the loss amounts were unknown at thetime of notification, which is common for third-party claims in litigation and tax audits where theoutcome is uncertain

Tax

5%

Operations

4%

Employment

4%

Environmental

3%

Property

0.16%

Litigation

0.15%

Fundamentals

0.11%Intellectual property

0.05%

Other

0.01%

4

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Global transactional risk insurance claims report 2023

4

North America
INCREASED CLAIMS NOTIFICATIONSNorth America registered increased claims volume in 2022, with 184 reported claims on 119transactions, compared to 160 claims on 97 transactions in 2021. The increase was not as high as
we anticipated given that Marsh placed policies for approximately 1,000 transactions in 2021 andwe have historically seen one in five deals receive a claim, most of which are reported within a yearof the deal closing.

07| Percentage of insured deals with a claim3

21%

20%
19%

14%

8%
4%

2017

2018

2019

2020
Policy Year

3 Chart reflects claims reported through the end of 2022.

2021

2022

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Global transactional risk insurance claims report 2023

INSUREDS SUBMITTING
CLAIM NOTIFICATIONS LATER
The lower than expected claims volume could be due to later reporting byinsureds. For the first time since we started tracking data, a majority of claims
came in more than 12 months after closing. In 2022, only 45% of reported
claims came within 12 months of closing, in contrast to 58% in 2021 and 53%
in 2020. Even when analyzing only first-party claims, which are more likely toarise within a year of the buyer taking control of a business, our data shows asignificant decrease (53% in 2022 versus 68% in both 2021 and 2020). We willcontinue monitoring to determine whether this becomes a trend; so far ourdata shows this has persisted into 2023.

TOP BREACH
TYPES EVOLVING
Financial statements and tax breaches continued to comprise a substantial
percentage of claims, but the largest percentage of claims in 2022 arose fromcompliance with laws breaches. While these types of breaches have historicallycomprised a significant percentage of claims each year, 2022 was the first year
it was the most common breach type. In prior years, these types of claims
arose primarily from third-party allegations, but the number of first-party
compliance with laws claims increased significantly in 2022 and the number offirst-party versus third-party claims was nearly even.
The increase in first-party versus third-party claims was not limited tocompliance with laws breaches. Nearly 50% of reported claims were firstparty claims in 2022; in both 2020 and 2021 third-party claims comprised
more than two-thirds of claims. It is unclear whether 2022’s increase was due
to a greater effort by insureds to uncover breaches or simply a decline inthird-party issues. Regardless of the cause, since first-party claims have been
the more significant source of claim payments, we are watching how thisdevelops going forward.

08| Time to notification from closing (2022)
0.5%
6%
17%

18%

Interim period

18 to 24 months

0 to 6 months

24 to 36 months

6 to 12 months

Over 36 months

12 to 18 months

13%

27%
20%

09| Claims by breach type (2022)
21%

Compliance with laws
Financial statements

16%

Tax

16%

Litigation

8%

Operations

7%

Other

7%

Material contracts

7%Intellectual property

7%

Environmental

6%

Employment

6%

Fundamentals

1%

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Global transactional risk insurance claims report 2023

INSUREDS RECOVEREDSUBSTANTIAL CLAIM PAYMENTS
Marsh clients in North America received more than US$200 million of payments from
R&W policies in 2022. More than 80% of the amounts paid resulted from first-party
losses. Approximately 80% of the amounts paid also involved a claim asserting loss
based on a multiple of earnings before interest, taxes, depreciation, and amortization(EBITDA).
Consistent with previous years, the majority of paid claims involved a financial statements
breach; these types of breaches have historically proven to be the most significant sourceof losses under R&W policies. Material contracts breaches have regularly produced thesecond largest payment amounts annually and accounted for 22% of the amounts paid in
2022. Since both financial statements and material contracts breaches can lead to losses
based on a multiple of EBITDA, we expect these types of breaches to continue generating
the majority of paid claims.
Most claim payments in 2022 came within 18 months of the claim notice, though
the timing of payment varied significantly. One client received a large eight-figure
payment only a few months after submitting the claim notice, while other clients
received payments more than three years after reporting their claims. Although thedata does not show a notable change in time to payment over the last few years, thetiming for first-party claim payments might accelerate in the future as insureds andcounsel become more familiar with the claim process and insurers hire more adjusters
to handle the growing claims volume. Third-party claims, however, depend on the
resolution of underlying matters, and protracted litigation or lengthy tax audits candelay claim resolutions and increase the average time to payment.

11|

Amounts paid by breach type (2022)
50%

Financial statements
Material contracts

22%
14%

Compliance with laws
Operations

5%

Tax

5%

Environmental

4%Intellectual property

0.05%

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Global transactional risk insurance claims report 2023

INSURED

United States strategic buyer

North America claimscase study
PRODUCT MISLABELINGTARGET

Food manufacturer

LOSS

US$85 million

RETENTION

Issue

Insurer’s response

How we helped

The insured buyer discovered that thetarget food manufacturer had not beenlabeling its products with accurate
ingredient information. This information
was not disclosed to the buyer before
the transaction.

The insurer questioned whether the lossof the major customer was permanent or
if the food manufacturer would be able toreacquire the customer and limit future
losses. The insurer was willing to pay
for the documented out-of-pocket costs
but was hesitant to pay for future losses
that were uncertain.

Marsh’s forensic accounting and claim
service experts helped quantify the loss,
including out-of-pocket costs, businessinterruption losses, and the diminishedvalue of the business.

Upon discovery, the buyer corrected
the mislabeling and disclosed the issue
to its largest customer, which pulled
products from its stores and demanded
compensation.
Since this customer represented asignificant portion of the company’s
revenue, the loss of that accountcreated significant financial challenges
for the company.

Through regular communications, Marsh’s
claims advocates explained to the insurerthat the loss of business was negatively
impacting the company’s finances
and urged the insurer to conduct its
investigation and pay the claim quickly.
The team also requested that the insurer
waive subrogation to avoid a publiclawsuit, which could lead to additional
losses for the insured.

US$1.3 million

Outcome

CLAIM PAYMENT
US$20 million

Though strong advocacy on behalf of the insured, Marsh specialists helped negotiate a $20 million payment to the client and theinsurer’s agreement to waive subrogation rights. Although the payment represented a slight discount from the full policy limit (toreflect the subrogation waiver and uncertainty about future losses), the client was pleased with the result because it not only received
the payment quickly without waiting to see if it could regain the customer, but also avoided a public lawsuit over the mislabeling.

5

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Global transactional risk insurance claims report 2023

5

EMEA
In 2022, we saw a shift from a promising first half of theyear — during which the high volume M&A trend of 2020
and 2021 continued across EMEA— to a more scatteredview in the second half of the year, with some regions
showing significantly lower transaction volumes, inparticular for larger deals. This change largely correlatedwith the overall drop in M&A activity across the globe, mostparticularly for the financial sponsor segment.
Claim notifications did not register a similar downward shift in activity, with 2022 seeing a record numberof notifications to insurers across the region. However, the policy notification ratio — the percentage ofpolicies that have received one or multiple claims — was lower compared with the other regions.
Formal claims and precautionary claims were generally notified later, although the majority werestill made within the first year since policy inception.
In contrast to recent years, tax stood out as the most common breach type in 2022, with more
notifications than financial statements, litigation, and material contracts breaches. Most of theactual claims paid (or agreed to be paid) in 2022 were related to tax and financial statements claims.
Lastly, clients’ sophistication in the use of warranty and indemnity (W&I) insurance across the region
has also increased the interest in and understanding of how individual insurers are dealing with
W&I claims in terms of process, claims teams, and responsiveness.

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Global transactional risk insurance claims report 2023

In 2022, we recorded 96 claim notifications across the region, which is a dramatic 65%
increase over the prior year.

The percentage of policies with one or multiple claims notified during the inception
year is lower in EMEA than the global average.

The current surge in notifications is in line with the increase in placed policies,
most notably in 2020 and 2021, which — as indicated in last year’s report — was an
expected trend. We should note, however, that the increased number of overall claim
notifications is also explained by the fact that an unusually high percentage of EMEA
claims in 2022 were notified to policies which received more than one notification.

W&I insurance typically has a policy period of two to three years for general
warranties and seven years for fundamental and tax warranties. Because of thelong-tail nature of these policies, we expect to see more notifications against policies
placed in previous years, especially 2021 and 2022. At the same time, a significant
part of the claims notifications that we have seen were made between 18 and 24
months after the policy inception date (see Figure 14), so we can reasonably conclude
that there is a low likelihood that policies from the 2018 to 2020 period will receive
materially more claims.

Looking at the number of policies placed in 2021 and 2022, and taking into account thatthe vast majority of claims are being notified within the first 18 months after the policy’s
inception, we expect the number of notifications to remain stable in the next year.

12| Significant increase in notifications since 2021

13| Percentage of deals with claims notifications

EMEA

9%

Global

2019

2020

2021

8%

2022

6%

6%

3%

94

284

66

344

58

243

96

303

2018

2019

2020
EMEA

2021

2022

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Global transactional risk insurance claims report 2023

14| Timing of notifications
4%

15| A shift towards later notifications
0 to 6 months

21%

6 to12 months
12 to 18 months

27%

18 to 24 months
24 to 36 months

16%

32%

EMEA
Time to notify

2019-212022

Difference

0 to 6 months

36%

21%

-15%

6 to 12 months

23%

32%

+9%

12 to 18 months

19%

16%

-3%

18 to 24 months

8%

27%

+19%

24 to 36 months

10%

4%

-6%

Over 36 months

2%

0%

-2%

Most claims were notified within the first year after the inception of the policy, which
has been the trend in recent years. But the percentage of claims notified within thefirst six months has dropped substantially, while far more matters have been notified
to insurers in the 18 to 24 month period.

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Global transactional risk insurance claims report 2023

16| Tax claims on the rise
Breach type

EMEA

Global2019-212022

Difference

2019-212022

Difference

Tax

21%

39%

+18%

21%

25%

+4%

Compliance

13%

13%

0%

12%

17%

+5%

Financialstatements

24%

11%

-13%

20%

13%

-7%

Litigation

8%

11%

+3%

7%

13%

+6%

Contracts

14%

11%

-3%

11%

8%

-3%

Intellectual
property

0%

2%

+2%

5%

5%

0%

Operations

2%

1%

-1%

3%

4%

+1%

Employment

6%

3%

-3%

10%

4%

-6%

Environment

3%

1%

-2%

5%

4%

-1%

Fundamentals

4%

3%

-1%

4%

2%

-2%

Other

6%

4%

-2%

3%

5%

+2%

In 2022, 39% of all notifications in
the region were related to tax claims,
followed by compliance with laws claim
notifications with a 13% share. This
marked a dramatic shift from the period
between 2019 and 2021 when financial
statements were the most common
alleged breach type, followed by tax. This
year’s data is more in line with global
trends with tax breaches topping thecharts of notifications.
The second half of 2022 saw an increasein the number of tax notifications.
This was mainly triggered by insureds
receiving audit notices to be carried out
by relevant tax authorities, which is atrend that continues in 2023 and at aneven quicker pace.
There are two likely reasons for theincrease in scrutiny:• Tax authorities have resumed
their activity in earnest as they try
to eliminate the backlog createdby the slowdown in their activity
during the early phase of the
COVID-19 pandemic.
• Governments are trying to increase
their revenue base in the face of
higher expenses.
Aside from tax breaches, the majority
of notifications related to breaches ofcompliance with laws, material contracts
or litigation warranties. We expect to see
an increase in notifications of breaches offinancial statements, material contracts,
and litigation warranties in 2023, leading
to a more balanced view of breach types.

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Global transactional risk insurance claims report 2023

PAYMENTS SLOWED IN
2022, HIGHER ACTIVITY
ANTICIPATED IN 2023
The number of claims that reached a final resolution in 2022
is in line with what we have seen historically, taking into
consideration the increased use of W&I policies. There were anumber of claims that were accepted by insurers, but not paidout before year’s end because the formalities necessary toprocess the actual loss payments had not been finalized. Since
these payments have now been transferred to 2023, we expect
an active year in terms of actual claims payments.
We should note that while the number of agreed claims —including those awaiting payment — were at expected levels,
the actual value of the claims paid was relatively low in 2022
compared to previous years. This is mainly because while
several straightforward claims were accepted and paid, somelarger and more complex claims are still pending resolution.
Of all claims notifications accepted in 2022, the largest sharerelates to tax and financial statements claims. Tax-related claims
can be notable in size, while financial statements claims can
include multiple components, which may substantially expand
the size of the loss suffered by the insured.

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Global transactional risk insurance claims report 2023

INSURED

European investor

TARGET

UK healthcare services

LOSS

GBP750,000

RETENTION
GBP35,000

UK claims case study
ACCURACY OF RECORDS AND MATERIAL
COUNTERPARTY
Issue

Insurer’s response

How we helped

The buyer and seller of a healthcare services
company agreed on the target’s enterprisevalue based on financial information
disclosed by the seller. After the transaction
completed, the buyer discovered that thetarget was achieving a significantly lower
EBITDAR than expected on the basis of what
was reported in the Financial Due Diligence(FDD).

The insurer’s counsel made requests for
information that were difficult to answer
and did not adequately address many ofthe points made by the insured.

Marsh helped the insured navigate theletters from the insurer’s counsel inorder to:Lacking W&I claims experience, the insured
submitted the claim notice directly tothe insurer. The notification provided
a summary of the facts and a list of
warranties that could have potentially beenbreached, but did not explain how they
had been breached and did not provide
supporting documentation.

The insurer questioned the insured’s
interpretation of the meaning and natureof ‘material counterparty’ and ‘records’,
which were key terms to two of themain warranties that had allegedly beenbreached.
Additionally, the insurer considered thatcover with respect to one of the key
misstated records was excluded since theissue was mentioned in the FDD report andwas therefore considered ‘disclosed’.

• Provide the required documentation toprove sellers’ knowledge.

• Explain the context in which ‘material

counterparty’ had to be interpreted
and why one of the key misstatedrecords could not be considered
to have been disclosed due to thesignificant difference in scope with thefigures in the FDD.

• Furnish the information required toadjust the loss claimed.

LIMIT

GBP7 million

OutcomeMarsh negotiated with the insurer to reach a commercial settlement that reflected the loss suffered by the insured.

CLAIM PAYMENT
GBP550,000

The amount paid allowed the client to recover a significant amount of its losses after the retention was eroded. It was also able to avoid
the costs of litigation.

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Global transactional risk insurance claims report 2023

European claims case study
MISEVALUATION AND MISDECLARATION
OF GOODS
Issue

Insurer’s response

How we helped

Merchandise imported by the target
company into the United States wasvalued incorrectly and therefore the values
declared to customs were wrong. Afterthe insured’s purchase of the target went
through, the company was asked to pay
EUR3 million in additional customs, duties,
and/or tariffs.

The insurer acknowledged receipt of
the claims notice on the same day andproposed a preliminary call between theinsurer, a representative of the insured,and a claims specialist from Marsh.

Marsh monitored the process to get theinsurer to swiftly process and evaluate theclaim, revised the insured’s correspondence
and documentation, and liaised with theinsurer on behalf of the insured.

The misevaluation and inaccurate
declaration constituted a breach of tax
and compliance warranties under thetransaction agreement.

Shortly after the call, the insurer
followed up with its preliminary view inwriting, along with a concise request for
information, which was provided by the
insured the following week.
Within six weeks, the insurer confirmed
coverage and agreed to pay the claimed
amount, subject to a mutually agreed
settlement agreement. The settlementagreement was drafted and executed
within a week. The payment was madethree months after notification.

INSURED

Corporate investor

TARGET

Manufacturer of electronics

LOSS

EUR3 million

RETENTION
EUR2.5 million

LIMIT

Outcome

EUR25 million

This claim is a textbook example of a smooth and fast claims process. The insured was very pleased with the outcome.
The preliminary call shortly after the notification helped create a friendly and collaborative process, allowing the insurer to quickly get aclear understanding of the matter at hand. The rapid turnaround on both ends resulted in a speedy claim process.

CLAIM PAYMENTEUR500,000

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20Global transactional risk insurance claims report 2023

6

Asia PacificWe saw continued growth in 2022 with the entry of various new insurers into the regional market anda general expansion of insurer appetite for Asia-Pacific transactions and related risks. We welcome
the domestic expansion and we foresee that a key differentiator for carriers, from a placement
perspective, will lie in their ability to pay claims, and to do so seamlessly and expeditiously.
In 2022, we continued to see a correlation between a steady deal count and notifications received
on policies placed. We also saw record-breaking claim payments across the region, including
several domestic claim payments by local W&I insurers.
Asia-Pacific is still relatively young in its adoption of transactional risk solutions, but as the market
stabilizes and matures, we expect an increase in the volume of claims and number of payments.
A total of 24 notifications were filed in the region during the year, almost the same number
filed in 2021. Note, however, that notifications overall increased by 30% from 2019, compared
to a 7% growth in global notifications, which reflects the growth of the market in the region. We
expect to see notifications increase as our placement book grows, before aligning with global
rates of notification.

17| Number of notifications
2019

2020

18

284

19

APAC
2021

344

Global

2022

25

243

24

304

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Global transactional risk insurance claims report 2023

DEALS WITH CLAIMSIn the region, 9% of deals finalized in 2022 received
a claims notification during the year. This is to be
expected given that clients across the region often
file precautionary notifications in reservation of theirrights under the policy, even when potential losses
are well below the retention threshold. Overall, therate of claims has decreased over the last two years,
mirroring reported statistics across the globe. It is
foreseeable that Asia-Pacific comparative rates ofclaims will continue to stabilize and align with global
norms as the increase in the uptake of W&I insurance
in the region continues.

TYPES OF CLAIMS

18| Percentage of deals that received claims
2019

2020

2021

2022

APAC
Global

16%

14%

11%

14%

15%

12%

9%

5%

19| Breach types
Breach type

APAC

Global2019-212022

Difference

2019-212022

Difference

Tax

43%

23%

-20%

21%

25%

+4%

Compliance

10%

5%

-5%

12%

17%

+5%

Financialstatements

17%

0%

-3%

20%

13%

-7%

This finding is unsurprising for several reasons.

Litigation

10%

64%

+54%

7%

13%

+6%

First, only 14% of the notifications stemmed from targets
located within the region, with the vast majority offilings having originated from cross-border outboundplacements in more litigious jurisdictions.

Contracts

5%

5%

0%

11%

8%

-3%

Intellectual
property

2%

5%

+3%

5%

5%

0%

Operations

0%

0%

0%

3%

4%

+1%

Employment

10%

0%

-10%

10%

4%

-6%

Environment

2%

0%

-2%

5%

4%

-1%

Fundamentals

0%

0%

0%

4%

2%

-2%

Other

0%

0%

0%

3%

5%

+2%

In recent years, Asia-Pacific claims werepredominantly related to tax and financial statements
warranties. However, litigation warranties became theleading category of breach across the region in 2022,
accounting for 64% of all claims notified.

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Global transactional risk insurance claims report 2023

The majority of breaches reported in the region — 57% — stemmed from a single deal.
This unusual occurrence meant that the same deal received double-digit notifications,with the insured claiming that financial statements, tax, compliance, and intellectual
property breaches resulted from the same events as the litigation breaches. We should
point out that litigation warranty breaches still only accounted for 13% of all notifications
filed globally last year. Given that litigation warranty breaches in the region were a minor
driver of claims frequency until 2022, it remains to be seen whether the surge in thesenotifications is an anomaly or a trend to monitor in the future.
Close to a quarter — 23% — of all notifications filed in the region in 2022 related toa tax warranty breach. This is in line with global data, where 25% of all notifications
made during the year were in relation to a tax breach. If allegations of financial
statements breaches were filed as standalone notifications, rather than concurrent
litigation breaches, they would have accounted for around 20% of all notifications in
2022, aligning with global trends for the period between 2019 and 2022.
These findings continue our long-held belief that, in certain jurisdictions in Asia-Pacific,
it is very difficult to conduct full due diligence on tax and financial statements at the
pre-acquisition stage, which will continue to be areas of risk across all jurisdictions.
Transactional risks insurance solutions will continue to be seen as a major source of
mitigation for these unknown risks.



TIMING OF NOTIFICATIONSIn 2022, a majority of clients in the region filed claims notifications after the second
year of their policy’s inception. This differs from previous findings that a majority of
notifications are filed within the first year to 18 months.
In the period between 2019 and 2021, 40% of claim notifications in the region werefiled within six months of a policy’s inception. In contrast, in 2022, 52% of insureds
filed notifications between 24 and 36 months after the policy was placed. We believethat clients in the Asia-Pacific region would prefer to act promptly and proactively
in reserving their rights against the policy, and this delay in notification is largely afunction of the types of claim notifications received during the year. A majority of thesefilings were made on a precautionary basis close to a policy’s general warranty expiry
date, which in Asia-Pacific is typically three years from the date of completion. This
would have been a major factor in the overall increase in the number of notifications
received later in a policy’s life. Since the product operates on a “claims made” basis, it
is to be expected that clients are likely to secure their rights under a broad range ofpotential breach events prior to the expiry of the policy period.
On the other hand, we note there was a 14% increase in the number of claims filed
between six and twelve months after inception. While the overall timing of notifications
may have slowed, this does show that many clients are still acting proactively in bringing
a notification to an insurer’s knowledge promptly in the post-acquisition period.

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Global transactional risk insurance claims report 2023

20| Move toward later notifications
Time to notify

APAC

Global2019-212022

Difference

2019-212022

Difference

0 to 6 months

40%

4%

-36%

23%

13%

-10%

6 to 12 months

3%

17%

+14%

26%

27%

+1%

12 to 18 months

15%

13%

-2%

21%

23%

+2%

18 to 24 months

18%

4%

-14%

16%

15%

-1%

24 to 36 months

13%

52%

+39%

11%

16%

+5%

Over 36 months

11%

9%

-2%

4%

5%

+1%

CLAIMS PAYMENTS
Claims performance is and will continue to be a major differentiatorfor carriers in a competitive market, which has expanded in the AsiaPacific region. For insureds, speedy and seamless claim processes and acommitment to resolving claims are as important as premium cost andthe extent of coverage when choosing an insurer. Insurance products
are ultimately about claims, and our clients purchase policies with the
expectation that the selected market will support them at the time of an
insured loss.
In 2022, we helped clients in the region receive close to US$30 million in
payment for four claims, including the first domestic payment made undera local insurer’s policy in Japan.

CONTINUED GROWTHEXPECTED
Demand for M&A insurance solutions in the burgeoning Asia-Pacific market
remains strong as deal parties look for commercial ways to de-risk theirtransactions, particularly in light of the current macroeconomic factors thathave affected the risk profile of deals across the globe.
Given the continued growth of placements in the region, the strong claims
infrastructure offered by insurers, and positive claims response overall, we
expect that the high claims activity in 2022 will continue through 2023 andbeyond, and will eventually align with global norms.

24
24

Global transactional risk insurance claims report 2023

INSURED:

Asian claims case study

Japanese corporate

TARGET:

Energy company

LOSS:

US$11.4 million

COMPLIANCE BREACH UNDER DOMESTIC POLICY
IN JAPAN
Issue

Insurer’s response

How we helped

The insured purchased a company that
had the rights to develop an energy plant,
which was currently under construction.
The facility was meant to be built in a
mountainous area.
However, the gradient of the slope on
which the plant was located was steeper
than permitted by local regulations, a factthat was only discovered when a landslide
took place.

The site was under close government
surveillance considering the potential
public hazard.
Following the compliance breach, theinsured filed a claim to quickly access theinsurance payment in order to fund therequired rectification steps.
The insurers issued a request for further
information as they wanted to understandthe breach, and the incident.

The Marsh team worked with the insurer
to explain the need for a speedy payment
so that the insured could proceed withthe project.

RETENTION:
US$75,000

Outcome
The insurer paid the full claim (net of retention) within seven months of the date of notification.

LIMIT:

US$11.3 million

CLAIM PAYMENT
US$11.3 million

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Global transactional risk insurance claims report 2023

Pacific claims case study
NON-DISCLOSURE OF FINANCIAL AND
VALUATION INFORMATIONIssue
The insured purchased a construction
company based on profitability margins
for several contracted infrastructure andother projects.
After the transaction, the insured
discovered project reports that showeda lower margin than what had been put
forward by the target.
The insured promptly filed a claim basedon a breach of seller disclosure warranties
regarding profitability.

Insurer’s response

How we helped

The insurer initially asserted that theclaim was forward-looking and did notconstitute a breach of warranty.
Subsequently, once the insurer granted
indemnity, it argued that an alternate
valuation methodology (discounted cashflow) should be adopted in quantifying
losses, instead of the methodology(earnings multiple) used by the insured
when it acquired the target.

Marsh was heavily involved in negotiations
between the insured and insurer,
successfully demonstrating to the insurerthat a breach had occurred, and thatthe valuation methodology used by
the insured was an appropriate basis
for the claim.
Our long-standing relationship with theinsurer was critical in helping to facilitate
the settlement.

Outcome

INSURED

Utilities and transportation
service provider

TARGET

Construction company

LOSS

US$6.94 million

RETENTION
US$560,000

Based on the constructive dialogue that Marsh enabled throughout the process, the insurer agreed to make a payment that wassignificantly higher than its own loss quantum analysis.

LIMIT

US$28 million

CLAIM PAYMENT
US$4.93 million

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Global transactional risk insurance claims report 2023

7

Trending topic: Insureds
focusing on insurers’
claims performanceWith the absolute number of M&A transaction-related claimson the rise, Marsh’s clients are showing an increased interest in
insurers’ claims execution, process, and performance.
Clients are increasingly concerned with how insurers will handle their potential claims. Given that a claim
against a counterparty could lead to a long and costly litigation process, more buyers are looking at R&W
insurance as an alternative that can lead to a smoother and faster process. We expect insurers to show acollaborative attitude throughout the process and a willingness to resolve claims and make payments.
For this purpose, Marsh continuously tracks insurers’ responses to claims notifications, paying particularattention to responsiveness, flexibility, commercial acumen, and speed in execution. These insights allow us
to provide the best advice when clients need to choose an R&W insurance solution provider at the outset ofan M&A transaction.

8

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Global transactional risk insurance claims report 2023

8

Conclusion
With transactional risk policies firmly established as a critical
tool for risk transfer and deal facilitation, more claims are likely
on the horizon, despite a reduction in M&A activity.
The additional insurance capacity that has entered the market
has led many insurers to offer expanded coverage and reduce
retentions, both of which will likely increase future claims
volume and claims payments.
Although insurers have already paid significant amounts forcovered claims, there is still opportunity to improve the claims
experience, and insurers’ claims handling and performanceis more important than ever. A broker with dedicated claims
specialists and experience handling R&W claims can help
insureds successfully navigate the claims process and obtainfavorable claims resolutions.

About Marsh
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colleagues operating in 130 countries, Marsh serves commercial and individual clientswith data-driven risk solutions and advisory services. Marsh is a business of Marsh
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This document and any recommendations, analysis, or advice provided by Marsh (collectively, the “Marsh
Analysis”) are not intended to be taken as advice regarding any individual situation and should not be
relied upon as such. The information contained herein is based on sources we believe reliable, but wemake no representation or warranty as to its accuracy. Marsh shall have no obligation to update theMarsh Analysis and shall have no liability to you or any other party arising out of this publication or
any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal mattersare based solely on our experience as insurance brokers and risk consultants and are not to be relied
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Analysis could be materially affected if any underlying assumptions, conditions, information, or factors
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