A high percentage of mergers and acquisitions (M&A) globally result in disputes and insurance claims after finalisation, according to AIG.

The insurer says nearly 14% of M&A policies it wrote around the world between 2011 and 2014 resulted in a claim under its representation and warranties cover.

The total number of claims during the study period was 132. While AIG says this “can be considered low volume relative to other insurance lines… the claims data spans policies covering about 1000 deals worth more than $200 billion – and policies written during the study period still hold the potential for a claim”.

Financial statement misrepresentations were the leading cause of damages, accounting for 28% of all claims. Other major causes were tax errors or misrepresentations (13%) and discrepancies emerging from a company’s contracts (11%).

“A deal can come back to haunt,” AIG Global Head of M&A Insurance Mary Duffy said. “Even the most sophisticated and largest companies can and do miss critical issues during the deal process.” 

AIG says 19% of companies in M&A deals worth more than $1 billion claimed damages after the close of a transaction, while the rate was 15% for transactions costing below $100 million.

While buyers accounted for 75% of representation and warranties policy purchases, sellers were much more likely to make a claim, with 19% doing so.

But buyers’ claims were more severe, accounting for most of the 15 largest cases handled by AIG during the period.

The insurer says clients in the Asia-Pacific region are the most likely to file claims, with 18% of policyholders from the region making a claim during the study period.