W&I Insurance gaining traction in new territories

A conversation with Juan Manuel Velázquez, TRI Underwriter, and Birgit Rummel, TRI Manager DACH & CEE, Tokio Marine HCC (TMHCC)

Mergers and acquisitions (M&A) are often an economic stimulus for the companies involved and indeed the broader sectors in which they operate. But since 2022, M&A activity has slowed down and the heat has come out of the market with both deal volumes and values struggling to keep pace with what was a record-breaking 2021.

According to a report from PwC, in the first half of 2024, the global volume of transactions fell by 30% while their value increased slightly by 5%. This trend is repeated in the Americas where volumes decreased by 34%, in Asia Pacific where they were down by 23% and in Europe, the Middle East and Africa, where deal volumes decreased by 31%.

While this shows a clear global trend, dig a little deeper into the data and distinct nuances and disparities in experience emerge. In India for example, while the volume of deals slowed from a 2022-high, activity throughout 2023 was robust and activity levels were in fact higher than those experienced across the 15 years leading up to 2023 (with the exception of 2022). And in the Middle East, a proliferation of Sovereign Wealth Funds (SWF) allowed M&A activity maintain its forward momentum, with SWFs accounting for approximately 86% of deal value in the Gulf region.

Long a key characteristic of European, Pacific, and US M&A activity, Warranty & Indemnity (W&I) insurance (or Representation & Warranty insurance as it’s known in the US) has been making inroads in other territories such as Asia and Latin America but most recently in the Middle East and Africa. 

In the past, our appetite was mainly focused on transactions across Europe, the US, APAC, and Latin America but, recently, TMHCC’s focus has expanded significantly. A global perspective combined with local service helps us penetrate the market more effectively and compensate for the decline in the number of M&A deals worldwide

says Juan Manuel Velázquez, Senior Underwriter for Transaction Risk Insurance (TRI), at Tokio Marine HCC (TMHCC).

Also, this has greatly enhanced the breadth of cover we can offer in more traditional jurisdictions, especially where targets with a multinational presence are concerned

he adds.

 TMHCC was one of the first entrants into this line of business and as such, has also been one of the pioneers in offering this solution in emerging TRI markets.

For instance, in Southeast Asia and Africa, we placed our first policies almost a decade ago whereas, in Latin America and India, we go back to 2018. And last year, we added the Middle East making our geographical proposition one of the most comprehensive in the market. We currently witness and expect further growth in the usage of the product emanating from these territories… For starters, the cost of the product is substantially lower than two years ago, while the level of coverage has expanded” says Juan Manuel. “This has made the product more attractive to clients of all sizes, but it has also made it more effective for smaller deals where the starting costs used to be too high

he adds.

TMHCC has been able to build this global presence largely because its parent company, Tokio Marine Group, has a presence in nearly 50 countries and has the geographic reach and local capabilities necessary to meet the needs of an increasingly global M&A mindset.

Notwithstanding the global reach of our team, we are set up in such a way that our colleagues focusing on the US, Europe, Latin America, Asia Pacific, the Middle East and Africa can easily coordinate and collaborate to provide clients with the bespoke solutions they need,” says Juan Manuel. “Another key strength is that our underwriters, wherever they are based, are trained in and can issue both a US (R&W)- or European (W&I)- style policy depending on the terms and requirements of the sale agreement

he continues.

It is this distinct approach that has allowed TMHCC to become one of the leading W&I insurers in emerging TRI markets from a standing start just over five years ago.

As the product gains traction and clients and advisors get better acquainted with it, the process has also become smoother. “In the past, placing a policy in Latin America would have taken at least one month whereas now, a standard process will take 10-15 days at most, even with fronting involved. In some special cases, we have managed to get clients on cover in just four days

adds Juan Manuel.

The increasing attractiveness of this product in these markets can also be attributed to experienced insurers like TMHCC, having acquired the necessary skills and knowledge to navigate them.

Our experience allows us to avoid unnecessary delays caused by a lack of understanding of local regulations and legal landscapes as well as the inability to manage the competing requirements of the various legal jurisdictions often involved in today’s global M&A activity,

says Juan Manuel.

 What’s more, a good W&I/R&W insurance policy, administered by experts, provides more than a promise to pay a claim. It delivers the expertise and experience of insurers in dealing with these transactions and brings an extra pair of eyes to the whole due diligence process

says Juan Manuel.

In line with that, Juan Manuel stresses that local language capabilities and knowledge of local cultures, political and tax systems is crucial for any insurer operating in the global TRI market. Those that do not have that insight are forced to be more conservative in their underwriting approach or to delay the process further and, consequently, become less attractive to buyers. 

For example, in Latin America, our knowledge of local specificities and the ability to transact a deal in English, Spanish or Portuguese, allows us to better understand the region, their labour relations, tax laws and any political sensitivities. Many of these matters are very country-specific, but we are comfortable with that

he says.

 Our underwriters not only have the capabilities to underwrite deals both large and small across the globe but have the necessary local knowledge as many of us are from the regions that we underwrite

he adds.

And even in territories where TMHCC does not have a physical presence, it can rely on its vast network of Group and fronting companies to bring its global infrastructure and expertise to any company wishing to acquire, wherever they are in the world.

Another aspect that is boosting the demand for W&I in Latin America, Middle East, India, and Asia is the ability for some insurers to issue a policy for insureds domiciled in those places. “As the appeal and knowledge of the product increase, more and more local players are looking for this solution,” remarks Juan Manuel.

I believe that one of the reasons TMHCC is a leading market in these territories, is its vast licensing network. For example, in Latin America we have fronting arrangements in Chile and Mexico, with Brazil being added to that list soon. In Asia, either through sister companies of the Tokio Marine’s group or fronting partners, we can issue local policies in India, South Korea, Malaysia, Hong Kong, Singapore, Vietnam and, obviously, Japan. And this list is growing all the time with new fronting arrangements currently being negotiated in the Middle East, Africa, and Latin America

he adds.

However, it’s one thing to have fronting capabilities and another to have the experience of managing them. “This is a unique type of insurance, and its special features are not necessarily familiar to local insurers. But having worked with them for some time, across the globe, we can offer a policy for a local domiciled insured which meets all the local requirements while limiting the possibility of unforeseen issues arising with the local placement process. This is a proposition that very few markets can match,” remarks Juan Manuel.

 Asia, Latin America, Africa, and the Middle East are growing quickly and catching up with other markets. Despite the level of maturity not being the same as in the US and Europe, all the signs point to W&I soon being operated in these territories much like they are in the more mature markets

says Juan Manuel.

We are confident that, whatever happens to global deal trends, the future for transaction risk insurance products in these territories looks bright.