Global Claims Data Study Spans Policies for approximately 1,000
Deals, Worth More than $200Bn
NEW YORK--(BUSINESS WIRE)--Feb. 25, 2016--
Nearly 14 percent of M&A policies written globally by American
International Group, Inc. (NYSE:AIG) resulted in a claim, according to a
study of the global insurer’s representation and warranties (R&W)
insurance claims data between 2011 and 2014. The study suggests a
significant number of M&A transactions worldwide may see issues arise
from breaches of deal terms discovered after closing.
Financial statement misrepresentations were the leading cause of these
M&A insurance claims, accounting for 28% of all claims during the
period. Tax errors or misrepresentations were the second most frequent
claim type, accounting for 13% of filed claims, followed by 11% of
claims filed due to discrepancies that emerge from a company’s contracts.
“A deal can come back to haunt,” said Mary Duffy, Global Head of M&A
Insurance. “From AIG’s perspective, transactions pose risks to a
significant number of companies, despite the best efforts during due
diligence. Even the most sophisticated and largest companies can and do
miss critical issues during the deal process.”
Buyers in a transaction purchase R&W Insurance to protect against
breaches of representations and warranties (whether innocent or
otherwise) made by a seller during the deal process. Sellers also
purchase the insurance to protect against buyers claiming such breaches.
The study found that companies in deals worth $1 billion or more were
the most likely to claim damages following the close of a transaction,
with 19% of policies covering this deal size seeing a claim. Companies
involved in transactions under $100 million were the next likeliest with
15% of policies covering this deal size seeing a claim.
The study also found:
Buyers in a transaction were most likely to buy an M&A policy,
accounting for 75% of policy purchases. Approximately 13% of them
reported a claim after a deal closed.
Sellers accounted for 25% of policy uptake. They were much more likely
to report a claim, with nearly 1 in 5 (19%) doing so.
While buyers were less likely to file a claim, their claims were more
severe. The majority of the top 15 largest claims reported to AIG
during the study period were from buyer-side policies.
Where and When?
The study revealed global variations in M&A claim frequency and
severity, as well as the length of time it typically takes for a claim
to be filed after a deal closes. Interestingly, the data showed the tail
on this type of M&A policy can extend well more than a year beyond a
deal’s closing date.
Clients in the Asia Pacific region were the most likely to file
claims. Some 18% of policyholders there reported a claim during the
EMEA had the lowest rate of claims reported with 11% of policyholders
submitting a claim. However, EMEA claims tended to be more severe,
accounting for the majority of the largest claims paid out by AIG
during the time period.
While 74% of claims were filed by policyholders within 18 months of
the close of transaction, a significant 26% were filed after the
“More and more, M&A insurance is becoming part of the transaction
process worldwide. Companies see it as a better alternative to closing a
deal than contentious negotiations to allocate potential risks and
unknowns,” Ms. Duffy said.
About the study
AIG is one of the largest writers of M&A policies in the world. It has
been writing M&A policies covering representation and warranties since
the late 1990s. The claims data between 2011 and 2014 cover a
significantly larger pool of transactions than in prior periods,
reflecting an increase in M&A activity and the growing acceptance and
use of R&W policies as part of the deal process. The total number of
claims during the study period was 132, which can be considered low
volume relative to other insurance lines. However, the claims data spans
policies covering approximately 1,000 deals, worth more than $200
billion, and policies written during the study period still hold the
potential for a claim.
American International Group, Inc. (AIG) is a leading global insurance
organization. Founded in 1919, today we provide a wide range of property
casualty insurance, life insurance, retirement products, mortgage
insurance and other financial services to customers in more than 100
countries and jurisdictions. Our diverse offerings include products and
services that help businesses and individuals protect their assets,
manage risks and provide for retirement security. AIG common stock is
listed on the New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com
| YouTube: www.youtube.com/aig
| Twitter: @AIGinsurance | LinkedIn: http://www.linkedin.com/company/aig.
These references with additional information about AIG have been
provided as a convenience, and the information contained on such
websites are not incorporated by reference into this press release.
AIG is the marketing name for the worldwide property-casualty, life and
retirement, and general insurance operations of American International
Group, Inc. For additional information, please visit our website at www.aig.com.
All products and services are written or provided by subsidiaries or
affiliates of American International Group, Inc. Products or services
may not be available in all countries, and coverage is subject to actual
policy language. Non-insurance products and services may be provided by
independent third parties. Certain property-casualty coverages may be
provided by a surplus lines insurer. Surplus lines insurers do not
generally participate in state guaranty funds, and insureds are
therefore not protected by such funds.
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Source: American International Group, Inc.
American International Group, Inc.