Liberty Global Transaction Solutions (GTS) revealed that global representations and warranties (R&W) claims notifications fell 21% to 120 cases last year. GTS’s 2024 M&A claims briefing, the fifth annual report since 2019, showed the downtrend continuing into 2024. However, with rising policy counts and a rebound in deal activity, especially mid – market deals, further decreases in notification levels are unlikely. The Americas region had the smallest decline in 2023 and was the only one with an uptick in claims in Q1 2024. Meanwhile, the Asia Pacific region reported its lowest R&W notifications in three years.
Claims activity is affected by deal timing, as many notifications happen within 12 months of closing, particularly in the Americas. This indicates insureds are more systematic in evaluating policy claims during the early and final warranty phases. High inflation and interest rates have hampered private equity deals, especially larger ones. But new entrants in the M&A insurance sector have expanded coverage and cut rates, though this may change as rates are expected to rise.
The report noted that just five types of breaches accounted for 97% of total claims paid or reserved. Accounting and financial issues, despite being only 14% of notifications, made up 59% of the total dollars paid or reserved, averaging $15.5 million per claim. Material contract issues, at 7% of notifications, had the highest cost per claim at $20 million. Tax issues had many notifications but a small portion of paid claims. Liberty GTS paid a record €46 million claim this year, showing its commitment. In total, Liberty GTS has paid or reserved nearly $340 million for R&W claims, with $125 million committed in 2023 up to August, highlighting the value of R&W policies for buyers.
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