Global R&W claims notifications fall 21%

APAC, however, reported the lowest R&W notifications in three years.

The global representations and warranties (R&W) claims notifications dropped 21% to 120 cases last year, according to Liberty Global Transaction Solutions (GTS).

GTS released its 2024 M&A claims briefing, marking the fifth annual report on M&A insurance claims since 2019. 

The report found that the downtrend has continued into 2024, although notification levels are unlikely to decrease further, given recent increases in policy counts and a rebound in deal activity, especially in mid-market deals. 

The Americas region showed the smallest decline in notifications in 2023 and was the only region to see an uptick in claims during the first quarter of 2024. The Asia Pacific region, however, reported the lowest R&W notifications in three years.

Claims activity is also influenced by deal timing, with many notifications occurring within 12 months of closing, particularly in the Americas.

This suggests insureds are increasingly systematic in evaluating policy claims during the early and final phases of the warranty period.

High inflation and interest rates have hindered private equity deals, especially at the larger end of the market, according to Liberty GTS President Rowan Bamford. 

However, new entrants into the M&A insurance sector have expanded coverage options and cut rates, though this trend may reverse as rates are expected to rise.

The report highlighted that just five types of breaches accounted for 97% of total claims paid or reserved. 

Accounting and financial issues, though only 14% of notifications, made up 59% of the total dollars paid or reserved, averaging $15.5m per claim. 

Material contract issues, while only 7% of notifications, led to the highest costs per claim, averaging $20m. Tax issues generated many notifications but represented a small portion of paid claims.

In a record claims payout for Liberty GTS, a €46m claim was paid this year, underscoring the company's commitment to honoring severe claims. 

Altogether, Liberty GTS has paid or reserved nearly $340m for R&W claims, with $125m committed in 2023 up to August, indicating significant value for buyers holding R&W policies.