M&A insurance arm lifts lid on the move to serve untapped market
“When we talk about concerns that these types of transactions were not previously insured, there are two main reasons,” noted Lee. “Normally, the seller (the public shareholders) does not give the guarantees; the target gives the guarantees to the buyer, and basically nobody stands behind those guarantees. The main thing that the insurer wants to find is that they have the right to go against the seller in the event of a fraud subrogation claim.
“The second key in this space is really the fact that these are very high risk public operations, and the public operations have added exposures. What the D&O (directors and officers) market looks like here in Australia, and the class action environment, people are being sued all the time. So these are the two main risk factors that made these transactions generally uninsurable from our point of view. “
Liberty GTS has tailored its W&I product to have targeted exclusions in these areas to effectively create a target business risk similar to that of a private transaction. “This is how we were able to get rid of it and be confident to cover these types of transactions,” Lee said.
For example, compliance with listing rules and public D&O exposure are excluded from W&I insurance on the basis that other policies specifically designed to cover these risks are already in place by the target. This allows the insurer of representations and warranties to ignore these risks when pricing premiums.
According to Lee, there is no cap in terms of enterprise value, but the typical size of insured transactions is between $ 50 billion and $ 5 billion.
Lifting the lid on the movement, the director of Liberty GTS said, “This product has been around for about a decade, and we’ve come to a position where we’ve finally grown the market so that it has a really strong adoption (around 80%) in the private M&A space. But where else can we grow up, right?
“To increase the size of the market or increase what we can do, we need to enter more transactions… [such as] public-private transactions. So that was really another piece of the pie, to tackle these other ongoing transactions that weren’t insured. “
Going forward, the aim is to expand the offer in geographies or jurisdictions where the policy can be adopted, as well as to standardize the product to make it suitable for other transactions such as those involving small businesses. and medium-sized enterprises. Lee’s camp would also like M&A insurance to become a ubiquitous part of buying and selling companies.
“Trying to increase the size of transactions and the types of transactions that we can insure is key for us with this product,” said Lee. Insurance company. “I am very excited about the growth profile this product can go into. “