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R&W Claims Trends and the Potential Impact on Premiums

Insurance giant AIG is concerned. Although the rate of claims from Representations and Warranty (R&W) insurance, which covers M&A transactions, has been steady since 2012 across the board, for deals of all sizes… they have noted a rising trend with how much they are paying out for smaller claims. In a nutshell, they are paying more on smaller claims than before. This is for policies for smaller deals where the premium was a relatively small amount. In other words, the area where premiums are down, claim payments are up. I consider this a signal from AIG. They’re saying this trend is not sustainable and that means the insurance market should look to solidify rates and potentially look at increases. I believe we should also be prepared for more stringent underwriting for these types of transactional insurance policies as well. As they put it in their recent report, M&A: Small Deals and Emerging Markets Drive Claims Activity: “This shift was picked up in AIG data between 2018 and 2021, and we expect that moving forward we’ll continue to see greater deal and claim activity in these segments. Almost without exception, the limited number of larger deals and deals overall, together with a soft market insurance environment has resulted in terms and conditions and, in particular, policy pricing that is not sustainable in the mid-to-long term.” In other words, the area where policyholders pay the least, the insurer is paying out more. The backdrop to this “warning” that they will raise rates is that I do not think AIG can attribute the whole rising trend to an issue with the claims themselves. Increased competition and a slowdown in deal-making – which caused a reduction in demand for R&W insurance – are also contributing factors. Granted, underwriting in recent years has also been

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M&A Buyers Should Secure Sell-Side Transactional Liability Insurance.

Why – and When – M&A Buyers Should Secure Sell-Side Transactional Liability Insurance

Let me say this loud and clear right now: Every Buyer of a sub-$30M EV target should insist on a sell-side Representations and Warranty (R&W) insurance policy from their counterparty. This might sound strange. And I know that you’ve probably encountered many Buyers who are reluctant or resistant to the idea of even considering a sell-side insurance policy. After all, the Buyer is not insured under this coverage. The name on the policy is the Seller’s. A sell-side policy is only triggered when the named insured (the Seller) receives a demand from the Buyer saying there has been a breach

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A Close Look at Deal Drivers for 2023

A Close Look at Deal Drivers for 2023

When looking ahead at 2023, it’s clear there are economic headwinds out there impacting deal-making, including inflation and the threat of recession. Big tech companies are entering a period of austerity, with giants like Google and Microsoft laying off tens of thousands of employees recently. They over-hired during the pandemic, and they are now having layoffs. But I’d make the case that lower middle market M&A, especially with regards to tech, media, and telecommunications firms and business services companies, will see no slowdown in deals… In fact, there could very well be an increase in transactions in the coming year.

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Two women shaking hands and confirming the deal.

Breaking Down Your Transactional Liability Insurance Options: No Insurance, Traditional Buy-Side, and New Sell-Side

When looking at options to cover a M&A transaction in the past, we’ve always said that you could either use traditional Representations and Warranty (R&W) insurance or… nothing. Nothing would often be the case for deal sizes under $20M, where R&W coverage simply does not extend these days except in very special cases. Now, we have a compelling third option, an innovative Sell-Side policy, for the smaller acquisitions out there. It’s called Transaction Liability Private Enterprise (TLPE). It was created just a couple of years ago by London-based CFC Underwriting but is now gaining ground in a serious way as

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Buyer Uses TLPE to Win Auction on Desirable $13M Tech Company

TLPE Case Study: Buyer Uses TLPE to Win Auction on Desirable $13M Tech Company

For many years, it was standard practice for Sellers in M&A deals with leverage to insist that Buyers forgo escrows as part of the terms of their deal and instead use Representations and Warranty (R&W) insurance. However, there is a catch … This process works only if the target’s pricing is above the Buy-Side R&W guidelines, which is $20M in most cases. And even then most insurers are reluctant to cover more than 30% of the purchase price.

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Rep and Warranty Insurance Is a “Mature” Product

In the world of M&A, Representations and Warranty (R&W) coverage has become a go-to transaction insurance product. Many PE firms, for example, have made it an almost standard part of any deal that is able to be covered. Simply put, R&W is a mature insurance product and despite its growth in popularity, it has not fallen off in terms of quality.

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The Lowdown on “Naked Tail” D&O Insurance

In insurance parlance, if you insure a particular exposure, you’re covered. If not, you’re bare. If you’re looking for a policy that covers something that’s never been covered before, you’re… naked. That’s the situation many privately held, small and middle market companies find themselves in when they seek to sell their business. The Buyer asks them to secure Directors and Officers Liability insurance (D&O), specifically a “tail” policy to make sure there’s a source of insurance coverage in case the Seller is held liable for any wrongful acts against an employee or others – things like human resources issues or

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Rubicon - Two Ways TLPE Insurance Might Cover Your Next Deal

Two Ways TLPE Insurance Might Cover Your Next Deal

Two Ways TLPE Insurance Might Cover Your Next Deal When it comes to acquisitions by PE firms, having Representations and Warranty insurance to cover the deal has become almost S.O.P. – it’s that common. But not every transaction qualifies, such as those under $30M in EV, or deals where the target’s financial records weren’t complete, and the Underwriters declined to cover the deal or at least included many exclusions. There is an alternative to traditional R&W insurance. A specialized new product that can also act as a solid alternative to “tail” policies for Directors & Officers liability coverage, also known

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