No post-Covid surge of M&A claims but third-party notifications up, says Liberty GTS

An expected post-Covid M&A insurance claims surge did not materialise, according to the annual analysis of its M&A claims by Liberty Global Transaction Solutions (GTS), part of Liberty Mutual Insurance. Tax-related matters continue to account for a large number of notifications, but there was a significant increase in third-party claims The Liberty GTS analysis found that the majority of claims came from deals with an estimated value of $250m or less, accounting for 64% of paid and reserved claims by value. Mega-deals over $1bn have the lowest claims notification frequency rate in Europe, the Middle East and Africa (EMEA), as well as in the Americas. The Liberty GTS 2022 Claims Briefing gives detailed data about the types of M&A deals and the industries most likely to involve a claim. The analysis covers GTS claims data between 1 January 2019 and 31 July 2022. It notes that the frequency of claims being reported is down slightly, with risks bound in 2019 currently running at 16% compared to a historical average of about 21%, while the widely anticipated post-Covid claims surge did not materialise. Liberty GTS president Rowan Bamford said: “Our annual claims briefing always gives an interesting insight into developments in the global M&A sector. There was some uncertainty as to the impact the Covid-19 pandemic would have, but the expected surge in claims post-pandemic has not occurred. This underscores the strength of M&A dealmakers in effectively judging the risk of individual M&As during the 18 months when Covid-19 caused major disruptions to due diligence and pricing.” The analysis reports that instances of multiple notifications have more than doubled since 2019, rising from 10% to 24.5%, with the trend most pronounced in the EMEA region, primarily due to an increased awareness among insureds around their notification obligations, says Liberty GTS. Tax-related matters account for 36% of notifications in the Asia-Pacific region, 34% in EMEA and 17% in the Americas. “While most of these are precautionary in nature and are received within 24 months of the policy incepting, there has been an increase in the number of notifications involving large ($10m-plus) tax-related issues,” the analysis states. Accounting and financial issues make up 29% of high-severity and 32% of medium-severity claims, despite making up only 11% of total notifications during the last 18 months, says Liberty GTS. It adds that 48% of non-tax-related notifications involved a third-party claim, the majority involving either employee- or intellectual property-related disputes. Bamford said: “This year, tax-related issues continued to be responsible for a large number of notifications, but on the non-tax side we are seeing a significant increase in third-party claims. This is quite likely to be due to the increased litigation threat faced by corporations as businesses explore all means of generating revenue when facing economic headwinds.” He added: “Going forward, sellers will need to take into account ESG-related issues as buyers now expect them to give specific warranties on these issues. All parties in a transaction also face challenges from global economics. Our underwriters remain ready to help clients navigate transactions through these turbulent times.”

No post-Covid surge of M&A claims but third-party notifications up, says Liberty GTS

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