most expensive in the world. Not long
ago, rates between 4 percent and 5
percent of the purchased limit were
standard in the market, he said.
Rates are higher in America due
Maier has noticed that the market is
to factors such as the higher risk of
litigation, lower disclosure of data
requirements imposed on sellers
and more expensive claims than in
other markets. Policies offer a mix
of first-party and third-party liability
coverages, and third-party liability
risk tends to be higher in the U.S.,
Benjamin remarked. On the other
hand, he noted U.S.-based coverages
tend to be broader in scope, with
narrower and less frequent exclusions
than in other markets.
taking almost all kinds of liability risks, as
fallen to 1 percent, especially for larger
deals,” he said.
Some exclusions can be added
to the coverage, and among the
most common are forward-looking
warranties. Carriers do not like to
cover purchase price adjustments and
any known issues such as pending
litigations or product recalls that are
Other thorny issues include the
underfunding of pension plans, wage
and hour disputes and union activity.
On cross-border deals, transfer pricing
liabilities also tend to be excluded.
A key element to the underwriting
process is the due diligence that buyers
are supposed to perform on their
targets before closing a deal, as carriers
base the wording of the policy on the
analysis their clients have done on the
risks represented by the transaction.
Insurers may refuse to provide
the coverage if the due diligence is
poorly done, or they can come up with
a high number of exclusions if they
see material gaps in the information
“We would rather write good deals
at a more competitive price rather
than increase price and write bad
deals. We believe that the market has
under-priced certain metrics,” said
Bryce Guingrich, managing director of
“Timescales are very tight, and they
R&W, Vale Insurance Partners.
Maier, however, notes that some
underwriters are less demanding
regarding the due diligence of deals in
a quest to attract customers.
Studies by AIG and UK brokers
Paragon reveal that the frequency
of claims in R&W policies is firmly
on the rise. Rob Brown, the global
practice leader of M&A insurance at
Lloyd’s insurers Neon, believes some
of the new entrants into the market
have underestimated the level of losses
that carriers can suffer in this line.
Another development is that
capacity is increasingly being offered
in new jurisdictions. Buyers must also
keep in mind considerations such
as the local expertise that they want
the underwriter to offer them and
the jurisdiction where the insurance
premium will be taxed.
The insurance contract is likely
to stay open until the negotiation is
concluded. That can mean an eleventh-
hour rush to finalize the coverage,
requiring an intense time commitment
from brokers and underwriters.
require people who can understand the
transactions and respond to situations
very quickly,” Brown said. &
RODRIGO AMARAL is a freelance writer
specializing in Latin American and European
markets . He can be reached at riskletters@
carriers compete to offer more attractive
terms and conditions.
“I have not seen a lot of requests from
clients that have not been met from
carriers,” she pointed out.
Soft conditions are also bringing
retention levels down, Gilbert added.
“Previously, insurers would often
require a retention equal to 1.5 percent
to 2 percent of deal value. Now it has
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