AIG's insights are intended to focus conversations around M&A due diligence and risk management

Sixth Annual Mergers & Acquisitions Claims Report

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Global Head of Mergers & Acquisitions, Mary Duffy, discusses this year’s Global M&A claims study 

AIG’s M&A claims statistics show that both claim frequency and severity remain at elevated levels

AVERAGE REPORTED CLAIM FREQUENCY 
ACROSS DEAL SIZES

FOR CLAIMS OVER $1M AVERAGE CLAIM SIZE

FOR THE LARGEST CLAIMS OVER $10M
AVERAGE CLAIM SIZE

PROPORTION OF MATERIAL CLAIMS OVER $1M CLAIM SIZE REMAIN CONSTANT

Source: AIG

A steady increase in the use of M&A insurance over many years has underpinned increasing R&W insurance claims

Increase in AIG’s R&W GPW from 2014-2018, in a growing market with many new entrants

Source: AIG

Increase in total R&W claims noticed from 2014-2018

Source: 2019 Aon R&W Insurance Claim Study, published in 2020

But recent volatility and a sharp bounceback in M&A activity has sharpened focus on due diligence and insurance

deals announced, 24% jump over 2020

Reuters/Refinitiv 1 January 2021-11 August 2021 vs same period 2020

of senior executives surveyed say they are dedicating more resources to due diligence processes

Source: Aon Risk in Review M&A report, 2021

Understanding reported incidents by breach type helps mitigate risk for future deal making

Top Incidents: Financial Statements 21%, Tax 19%, Compliance with Laws 16%, Material Contracts 12%

Source: AIG

Analysis of material contracts claims reveals key stress points to be picked up in due diligence

Note: Percentages total over 100 due to claims with multiple breach types

Profitability of contract 41%, Breach of material contract 37%, Customer relationship change 22%, Non disclosure of contract/term 15%.

Source: AIG

Intelligence from our claims analysis and underwriting expertise has helped identify some best practices, expanding the scope of more traditional “legal” contract review to encompass more practical elements of due diligence.

With material contracts breaches sometimes resulting in losses being alleged in excess of R&W policy limits, identifying issues prior to closing is particularly critical for buyers:

Conduct calls with key customers, rather than solely relying on seller representations about the relationship

Tailor due diligence to include an investigation into the target’s internal controls around the administration of contracts

Fully understand how expenses and associated costs that could impact the revenue and/or profitability of a particular contract feed through to the financial statements

For strategic buyers, don’t place too much reliance on your existing relationship with key customers for comfort

Representations and warranties insurance (R&W) provides both buyers and sellers with a solution that helps reduce transaction risks and assists in facilitating clean exits from investments on both the buy and sell-side – vital in today’s volatile economic environment. AIG has been assisting buyers and sellers with over 5,500 deals insured globally since the late 1990s.

AIG’s M&A insurance team is made up of experienced professionals located in strategic offices throughout North America, UK, Europe, and Asia Pacific. Contact your local AIG M&A team member to learn more.

See AIG's full M&A Claims report for details on the study methodology.