Mergers & Acquisitions 2023 Claims Reports

AIG's insights are intended to focus conversations around Mergers and Acquisitions (M&A) due diligence and risk management

AIG Claims Intelligence Series

Over the past 20 years AIG has paid clients $1.4 billion in R&W claims. Our longevity in the M&A insurance market, as well as the scale and breadth of our book of business, puts us in a unique position to share insights into claims trends. Our latest M&A claims statistics show significant claims activity on deals at the smaller end of the M&A market as well as regional differences in frequency and severity of claims.

Large claims continue to be a feature of the M&A insurance market.

Proportion of claims with loss payments has been steadily increasing since 2012.

60% of loss dollars come from smaller deals, but only 44% of premium dollars came from those same deals.

Compared to 7% of global losses, 38% of claims payments within the emerging markets segment are over $10m.

Emerging Markets Claims

Analysis of the distribution of our claims payments for the years 2012-2021, provides some useful insights about the deal risks involved in these emerging markets.

Compared to 7% of global losses, 38% of claims payments within the emerging markets segment are over $10m.

This clearly demonstrates the relatively high risk of the emerging markets segment and illustrates the need for adequate premium rates and prudent limits management strategy in those jurisdictions.

We have experienced claims across all of our emerging markets book, with losses coming from a variety of jurisdictions and breach types consistent with what we see on our global portfolio.

Focus on Smaller Deals

In the 2018-2021 policy period, we saw 60% of loss dollars come from deals smaller than $250m, but only 44% of premium dollars came from those same deals.

There are several possible reasons for such claims activity, including:

More limited internal compliance controls in some smaller target companies

Lack of adequate control on financial functions, to ensure compliance with GAAP or other applicable accounting standards

Less rigorous due diligence – particularly on the smallest of deals

AIG’s data is clear – multi-million dollar issues (and payments) are not confined to the largest transactions in the market. Even some of the smallest transactions see claims, and a number are severe relative to the size of the transaction in question.

Policy Breach Types

On smaller deals there appears to be a higher incidence of breaches related to compliance with laws representations and operations when compared to larger transactions.

R&W insurance provides both buyers and sellers with a solution that helps reduce transaction risks and assists in facilitating clean exits from investments on both the buy and sell-side—vital in today’s volatile economic environment. AIG has been assisting buyers and sellers with over 7,000 deals insured globally since the late 1990s.

AIG insureds benefit from dealing with knowledgeable underwriters and claims professionals who understand the complex nature of R&W transactions, can focus on the key issues, and bring them to resolution expeditiously. With market conditions putting increasing pressure on the M&A insurance market, it is more important than ever for clients to choose an insurance partner that is knowledgeable and tested.