The cost of insurance to cover problems involving M&A has nearly doubled in just two years, underwriters and brokers said, after an explosion of global dealmaking during the COVID-19 pandemic, Reuters reported. Potential buyers take out insurance to protect against issues such as misrepresentation by a target of its performance or order book, while sellers buy cover to ensure a clean exit. After years of falling rates due to tough competition, 2021 was the first year in which M&A insurance rates have risen since the market began more than two decades ago, said Andrew Johnson, director of M&A at broker Paragon. Some in the insurance industry said a lack of due diligence has led to a spike in claims, while the boom in mergers and acquisitions has translated into steeply higher premiums. "From August/September last year, we saw incredible deal volumes, [and] that has encouraged insurers to raise rates," said James Swan, a partner at insurance broker McGill and Partners. Global M&A activity hit a record $4.33 trillion in the first nine months of 2021, leaping 97% from $2.2 trillion scored in the first nine months of a pandemic-hit 2020, as firms positioned themselves for life after COVID. The M&A insurance market has risen to more than $5 billion from less than $3 billion a year ago, Swan said, adding that a contract he was working on in Europe was priced at around 1.9% of the cover available, up from around 1% a couple of years ago.
