Mergers and acquisitions may be a boon for investment banks and lawyers, but the risk that something will go wrong is rising and insurance payouts are getting bigger.
That’s one conclusion to be gleaned from a study by insurance giant American International Group Inc.
of M&A claims filed between 2011 and 2015, covering about 1,600 deals and more than $400 billion in deal value.
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The study found that the number and size of insurance claims against M&A deals is rising and the sums being paid out are getting bigger. One in four policies written on deals with a value of more than $1 billion ended in a claim. And 18% of all global representation and warranty (R&W) policies written by AIG resulted in a claim.
“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.”
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The study found that half of all material claims, defined as more than $100,000, were above $1 million. A full 47% were between $1 million and $10 million with an average payout of $3.5 million. Meanwhile, fewer than 7% exceeded $10 million, with an average payout of $22 million.