21 April 2017News

Claims for M&A deals over $1bn on the rise: AIG

M&A insurance claims are becoming more and more frequent, and the larger transaction are carrying greater risk with the average pay-out topping $20 million, according to a study of representation and warranty (R&W) claims by American International Group (AIG).

The study found that more than half of all material claims for this year – those incurring more than $100,000 – during the period were $1 million or greater.

Just below 47 percent of the claims were between $100,000 and $1 million, with an average pay-out of $300,000.

47 percent were between $1 million and $10 million, with an average pay-out of $3.5 million.

Slightly under seven percent were more than $10 million, with an average pay-out of $22 million.

“The bigger and more complicated a deal is, the more likely there is an unknown liability lingering,” said Mary Duffy, global head of M&A insurance at AIG. “We are paying sizeable claims, sometimes writing eight-figure checks in different geographies.”

Michael Turnbull, Americas M&A manager at AIG, added: “A maturing market mixed with pressure to execute transactions quickly could be a leading factor behind the increase in frequency. At the same time, we’re seeing claims across the board in terms of severity, which means that the product is responding to a host of different situations.”

While 27 percent of claims were reported in the first six months after a deal, a majority of 48 percent of claims were reported between six and 18 months afterwards.

The study showed that claim triggers were mostly steady year-on-year with one exception, “compliance with laws”, jumping to 15 percent of alleged deal breaches, compared to five percent last year.

Top five commons breaches claimed included financial statements (20 percent), compliance with laws (15 percent), discrepancies in a company’s contracts (14 percent), tax related (14 percent), or intellectual property (8 percent).

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