Interacting with the M&A market
The end of 2024 and the US election had signs pointing to a favourable 2025 for M&A dealmakers. As 2025 has unfolded, macro instability and uncertainty surrounding inflation, interest rates, tariffs and political conflict has caused trepidation amongst deal parties in the M&A market. US policy risk is leaving buyers and sellers alike, in wait and see mode. Transactional risk insurance, for a one-time premium, serves as a critical source of risk capital and deal facilitator, offering enhanced protection to buyers while allowing sellers to limit their liability.
Competition amongst the Warranty & Indemnity (W&I) insurance market continues to drive lower premium rates and coverage outcomes that favour policyholders. The W&I insurance market has remained relatively stable over the last year, and we expect this to continue through to 2026. While the market appears to be saturated, new insurers continue to enter the market which should balance any market exits that eventuate. There is over $1B of capacity in the Pacific which allows Bellrock to efficiently build cost-effective syndicated programmes. We remain mindful of large claims payments and the potential to impact rates and capacity. We also note that while markets have substantial capacity dedicated to W&I insurance, capacity for contingent risk insurances is typically sought from the London markets. We expect the popularity of contingent risk insurances to grow with improved education, and the need to limit sellers’ liability and protect balance sheets. Please also refer to our July 2024 update where some of the continuing themes are discussed in more detail.
Policy metrics and underwriting
Rates
Premium rates (premium as a percentage of the policy limit) have remained low. Although, we have noticed a greater variation in premium rates quoted on a transaction, resulting in a broad price range. This is perhaps reflective of a larger pool of insurers with a diverse approach to underwriting and pricing risk. The W&I insurance market offers a blend of established insurers, underwriting agencies (backed by insurers providing them with underwriting authority), and Lloyds syndicates. While we have certainly noticed more aggressive pricing from the newer market entrants, the more established markets are not materially more expensive. Some markets might have a greater appetite for certain sectors than others and aggregation concerns may also have an impact on pricing. In our experience, over the last year, pricing has not been the sole determinative factor in insurer selection.
Claims thresholds
A new retention (aggregate claims threshold) baseline has been set at 0.5 per cent (down from 1 per cent) of the enterprise value (EV) and policyholders have opted for lower/enhanced retention structures this last year. Asset sales and real estate transactions have attracted even lower (0.20 per cent of EV and nil) retention structures. The 0.05 per cent of EV de minimis (per claims threshold) is now common with even lower de minimis numbers sometimes offered for an additional premium. It is important to note that these thresholds are strictly subject to underwriting and diligence review supporting these thresholds. Where there is a gap between the materiality thresholds applied in relevant diligence streams and the policy thresholds, insurers will expect assurance that there is no material exposure with respect to matters that fall in that gap.
Coverage
Markets are now willing to consider disclosure related enhancements around buyer due diligence reports and the virtual data room for an additional premium on a deal-by-deal basis. Insurers have also been willing to entertain requests around transaction specific requirements on policy structuring, coverage and areas of underwriting focus. With a deeper understanding of the target’s risk profile insurers have been willing to remove typical exclusions on tax and environmental risk that were previously a default setting. Our experience on transactions over the last year reflects positively on the improved quality of underwriting and insurers’ collaborative approach.
Market direction and transaction themes
- Strategic divestments are on the rise as corporates re-prioritise capital. We have noticed an increase in the number of carve out transactions within the practice this year. Corporates are considering the importance of early engagement and structuring a W&I insurance programme to attract and present to a cross section of buyers and ultimately limit the seller’s liability. Amongst W&I policyholders, there was an almost even split of policyholders between strategic buyers and financial sponsors. As discussed in our last update, W&I insurance that was popular more amongst PE buyers is now willingly embraced by strategic sponsors.
- Smaller transactions under $50M are increasingly attractive to the W&I market. Particularly where insurers are focussed on limit management and inclined to deploy smaller limits on policies. Insurers expect the buyer to support the W&I process with adequate diligence on legal, financial and tax matters to give insurers underwriting comfort. These policies may be placed at or post signing, either as sell-side policies or buy-side policies. Under a sell-side policy, the seller is insured against claims by the buyer for warranty breaches. The more common buy-side policies, work as both ‘first’ and ‘third party’ policies where the buyer is insured and initiates claims under the policy instead of proceeding against the seller for warranty breaches.
- Distressed M&A and structured equity solutions are reported to be re-emerging. W&I insurance and innovative transaction risk mitigation tools are available to de-risk these transactions and offer enhanced warranty protection that would otherwise be unavailable to the buyer. Please contact our Transaction Risk Practice to further explore these options.
- Public M&A activity has remained strong through 2023 and 2024. Most of these transactions have been facilitated by a scheme of arrangement. Australian targets and the low AU$ are attracting an increasing number of foreign investors. It is relevant for directors to note that they may enhance target value if a W&I insurance programme is structured to insure a fulsome suite of operational warranties (these are typically appended to or built into the SID) that would otherwise be unavailable in the absence of a W&I policy.
Bellrock’s Transaction (M&A) and Contingent Risk practice is available to discuss the best approach to holistically de-risking your transaction while leveraging the current W&I market offering.
Continue reading our full range of market updates:
- Insurance Market Overview: July 2025
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