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Increased merger activity boosts transaction insurance

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The number of merger and acquisition (M&A) deals in Australia and New Zealand using warranty and indemnity insurance (R&W) jumped 37% last year compared to 2017, Aon says.

Its new M&A insurance report shows the value of M&A deals in Australia and New Zealand increased by $8 billion last year, with 24 more deals last year compared to the year before.

The growth in scale and sophistication of M&A processes here and in New Zealand, and a rise in cross-border activity between Asian and western markets – where R&W insurance is popular – has driven dealmakers to adopt the insurance more widely, Aon says. The number of claims on R&W insurance is also rising.

40% of respondents to Aon’s survey on the subject think protecting themselves against macroeconomic, tax, and cyber risks is the most important factor when valuing a deal.

This concern is rising as economic growth in China, South Korea, Singapore and Malaysia slows, the report says.

New insurers are entering the Australasian market and driving more cost-effective pricing, and lower rates for excess pricing in R&W insurance, the report says.

The number of private equity clients using R&W insurance grew by 82% between last year and 2017.

Aon recently appointed a new head of transaction insurance in New Zealand to take advantage of the situation.