Transactional Liability

Geopolitical instability, rising inflation, interest rate hikes, currency fluctuations, supply-chain disruption - these factors and more are fuelling market uncertainty and causing a slowdown in M&A activity. But this slower pace is perhaps not all bad news. It is giving deal makers breathing space to undertake due diligence, reflect on strategies and think innovatively. Deals that promote greater operational resilience, improve certainty of delivery, reduce production costs – such as joint ventures or vertical mergers with those in the supply chain - will be a key feature in 2023. This challenging environment will also drive up demand for warranty and indemnity (W&I) insurance, with greater recognition that insurance can help weather this period of great uncertainty.

Corporations recognise that tackling environmental, social and governance (ESG) issues can give them a competitive advantage and provide opportunities for growth. With greater scrutiny of ESG targets by consumers, employees, investors and now regulators, ESG considerations are increasingly an important focus in M&A deals. Buyers are critically assessing sellers’ commitments to energy savings, operational efficiencies, diversity and inclusion targets, and corporate governance as part of the acquisition process, to ensure ESG statements stack up and their merging corporate cultures will align. Significant differences in ESG ideology and performance criteria could be an obstacle to integration post-merger and may result in claims if mismanaged. ESG scoring - which uses quantitative measurements to independently verify ESG factors – is a growing market and it is expected to become more common place in the M&A due diligence process.

The difficult market conditions mean competition among insurers remains fierce. There are fewer deals but there are still high value premiums to be won as deal makers look for certainty in these uncertain times. We continue to see brokers and insureds press insurers to provide wider, US-style, cover. Insurers will need to remain vigilant with their policy wordings to avoid giving more cover than intended. On the claims side, insureds and brokers demand almost instant responses and insurers can differentiate themselves from the market by retaining experienced and knowledgeable legal and expert advisers.