M&A insurers have seen exceptions added to the insurance policies since the invasion of Ukraine and the imposition of international sanctions on Russia and Belarus, but whether the conflict will affect insurance prices is still unclear.
Pricing, which increased due to an increase in M&A business during the fourth quarter of 2021, rose during the first quarter of this year compared to the same period last year, and further increases are possible, experts said.
Issues like the war tend to affect coverage rather than price, says Emily Maier, partner and senior vice president, national group leader for M&A insurance, at Woodruff Sawyer & Co., which is based in Austin, Texas.
“The question is always the exact type of coverage provided or not provided,”; under representations and warranties, Maier said.
William Monat, Chicago-based global head of transactional liability at Mosaic Insurance Holdings Ltd., said insurance companies are more concerned about taking out the exposure and ensuring that they do not cover any known exposure.
“It’s more a matter of coverage terms than a price issue,” Monat said.
If a acquired target has exposure to the conflict – a known political exposure – transaction risk insurers will rule it out, says Larry Shapiro, San Francisco-based CEO and team leader for representation and warranty insurance at Alliant Insurance Services Inc.
Insurance companies have responded with either a broad exclusion of all exposure related to Russia, Ukraine or Belarus, or with a more tailored response where they still expect to exclude a related exposure but only if applicable, he said.
If there is any exposure to Russia and Ukraine at the filing stage, “we would largely exclude operations, sales or business with counterparties in those countries,” said Jay Rittberg, CEO of Euclid Transactional LLC in New York.
“If we do not see a connection, we pay attention to it and look at it carefully and if there is something we can exclude during the diligence process,” said Rittberg.
If there is a tangential exposure to a business that makes the risk of loss higher, it can affect pricing or conditions, he said.
“Sometimes there are indirect effects of war that can increase the loss profile of a company and we can use terms, retentions and other things,” Rittberg said.
On a global basis, market pricing rose by 10% during the first quarter compared to the first quarter of 2021, says Rowan Bamford, London-based president of Liberty Global Transaction Solutions, a unit within the American insurance company Liberty Mutual Insurance Co.
The conflict has probably added an element of caution to the market, said Mr. Bamford.
During the fourth quarter of last year, insurance companies did not have the resources to handle the increased demand for coverage, said Craig Schioppo, Melville, New York-based head of the United States and Canada’s transaction risk at Marsh LLC.
“Since then, prices have fallen slightly, by 10% or 20% since December,” Schioppo said.
At the same time, it is too early to say whether the conflict between Russia and Ukraine will have a significant impact on the volume of the agreement, says Randi Mason, co-director of corporate practice at the law firm Morrison Cohen LLP in New York.
“The volume of contracts is still quite high. It is not at the same pace as it was in the last quarter of 2021, but the first quarter is never as hectic as the fourth quarter,” says Mason.
Cross-border business to Europe or Eastern Europe has probably slowed down, said Maier from Woodruff Sawyer. “We have not seen a slowdown in domestic business,” she said.