Comments on W&I insurance for Going Public "M&A Insurance" Special edition Germany

By Birgit Rummel, TRI Manager and IP Lead, Tokio Marine HCC International

Trends in W&I insurance premiums

The European W&I market continues to operate in a highly competitive environment. Following several years of significant declines in premiums, rates have stabilised and the first signs of moderate premium increases are becoming apparent, driven by a rise in the frequency of claims. Nevertheless, standard transactions continue to benefit from intense competition amongst insurers. The scope of cover is now aligned much more closely with the specific transaction risks. Due diligence and the scope of cover requested are increasingly being coordinated.

New trends in the W&I market

The market for Warranty & Indemnity (W&I) insurance is increasingly evolving from a largely standardised insurance product into a strategic instrument for transaction risk allocation and risk transfer. Alongside traditional W&I policies, demand is growing for specialised solutions such as Tax Liability Insurance and, to a lesser extent, Contingent Risk Insurance (i.e. cover for specific regulatory or legal risks). These specialised products are often less dependent on general M&A transaction volumes and therefore contribute to greater diversification of the business models of many insurers and Managing General Agents (MGAs).

At the same time, the focus of due diligence is also shifting. Issues such as cyber security, data protection, artificial intelligence, sanctions, export controls, ESG and geopolitical risks are increasingly taking centre stage in risk analysis. In the defence sector, moreover, the handling of classified information, foreign direct investment screening (FDI) procedures and national security interests are now a regular part of the underwriting process.

Another key trend is the increasing use of claims analytics. Insurers now have more data to analyse their claims portfolios, and insights gained from claims handling are directly incorporated into the further development of underwriting guidelines, policy conditions, exclusions and pricing models.

At the same time, there is evidence of greater market segmentation. Individual insurers and capacity providers have adjusted their underwriting strategies or withdrawn from certain segments of the W&I market, whilst others have specifically expanded their capacity. In particular, a more selective underwriting policy is already evident for complex or loss-prone risk profiles, whilst in certain regions and risk segments, risk premiums are rising. It remains to be seen whether this greater risk differentiation and a more consistent underwriting discipline will become established in the market in the long term.

Another trend is the increasing internationalisation of underwriting. Cross-border transactions, differing disclosure regimes, local warranty regimes and regulatory requirements mean that international underwriting teams and legal expertise in the respective target jurisdictions are increasingly becoming a decisive competitive advantage.

This article was originally published in German by GoingPublic in its “M&A Insurance” special edition and is republished here in English with permission. The original publication is available on the GoingPublic website