AIG's insights are intended to focus conversations around Mergers and Acquisitions (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

20%

average reported claim frequency across deal sizes

$4M

average claim size for claims between $1M & $10M

$19M

average claim size for the largest claims over $10M

57%

proportion of material claims over $1M claims size remains constant

A steady increase in the use of M&A insurance over many years has underpinned increasing Representations and Warranties (R&W) insurance claims

108%

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

Source: AIG

400%

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

35,128

deals announced, 24% jump over 2020

 

 

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

96%

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

21%

Financial Statements

19%

Tax

16%

Compliance with Laws

12%

Material Contracts

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.

R&W insurance 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.

Sixth Annual Mergers & Acquisitions Claims Report

Frequency and Severity of M&A Claims Remain High

2021 Report: Representations & Warranties (US) Version

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Frequency and Severity of M&A Claims Remain High

2021 Report: Warranty & Indemnity (International) Version

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Access previous reports

A Rising Tide of Large Claims

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aig-manda-2020-r-and-w.pdf
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2 MB
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2020 Report: Representations & Warranties (US) Version

Filename
aig-manda-2020-w-and-i.pdf
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2 MB
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2020 Report: Warranty & Indemnity (International) Version

Taxing Times for M&A Insurance

Filename
aig-manda-claimsintelligence-2019-r-and-w.pdf
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5 MB
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application/pdf
2019 Report: Representations & Warranties (US) Version

Filename
aig-manda-claimsintelligence-2019-w-and-i.pdf
Size
1 MB
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2019 Report: Warranty & Indemnity (International) Version

M&A Insurance – The new normal?

Filename
aig-manda-claimsintelligence-2018-r-and-w.pdf
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922 KB
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application/pdf
2018 Report: Representations & Warranties (US) Version

Filename
aig-manda-claimsintelligence-2018-w-and-i.pdf
Size
912 KB
Format
application/pdf
2018 Report: Warranty & Indemnity (International) Version