17-05-2021
M&A insurance on an upward trend
Insurance AlertssM&A insurance on an upward trend
The general M&A insurance trend in Asia Pacific is changing rapidly. The trend has been upward despite a small dip last year due to COVID-19, according to London-headquartered BMS Group, an independent specialist insurance and reinsurance broker, in its inaugural "Private Equity, M&A and Tax Report -Redefining M&A Insurance for the 2020s".
M&A insurance has been gaining ground as a value-adding tool in Asian M&A transactions over the past few years. It is expected that the use will see continued increase in uptake in 2021, the report adds. However, in Asia Pacific, besides Australia and New Zealand, the use of M&A insurance is still lower than in Europe, UK and North America. The uptake of M&A insurance in the Asia Pacific accounted for 5.7% of all policies placed globally in 2020.
About 1 in every 10 private equity transactions in the Asia Pacific region are insured. In contrast, 4 in every 5 private equity transactions in North America use M&A insurance. In Europe and the UK, this is now firmly around 2 in every 3. The average premium rate in Asia-Pacific in 2020 was 1.31% on the policy limit, which is lower than the US (2.85%) but higher than Europe/UK (1.06/1.02%). The average policy limit was 25% of the enterprise value, which is in line with Europe/UK (26/27%) but higher than North America (19%).
In Asia, while 1% of enterprise value (EV) remains the starting position, percentages are decreasing to 0.5% of EV or lower (even zero for real estate deals in more mature jurisdictions).
M&A activity in 2020 was relatively strong across the board in Asia, with certain industries (e.g. technology, consumer business) and jurisdictions (e.g. Vietnam, China) taking the lead. It is widely projected that Asian economies will emerge strongly from the COVID-19 fuelled global recession. Forecasted Asian M&A activity in 2021 is promising, backed by a strong first quarter. A key driver behind this is the global PE funds’ increased focus and fund allocation to Asia.
Even though the number of policies placed has increased over the last five years, M&A insurance has not seen the same enthusiastic uptick as in North America and Europe. M&A insurance is still in its infancy in a number of countries such as China and India, two of the largest markets in Asia, due to unfamiliarity with such risk transfer solutions. In contrast, Asian financial hubs such as Singapore, Hong Kong, Seoul and Tokyo, have witnessed an increasing level of regularity and sophistication in its usage.
Outlook
BMS expects an increase in both demand for and insurers’ appetite for Asian M&A transactions as deal parties seek to ringfence transactional liability. Insurers and brokers alike are already anticipating such increased demand by investing into additional resources in the region.
Ms Sandra Lee, Asia CEO for BMS Group, said, “Our outlook for the Asia-Pacific market in the rest of 2021 is strong, with considerable deal activity expected as major private equity players are attracted by the region’s strong growth and fundamentals.” Although there is much activity across the board, there is particularly strong activity in technology and real estate.
The report follows a survey in January 2021 of 200 senior executives at leading global private equity funds, investment banks, corporate finance houses and various financial, tax, M&A, corporate advisers for their views on M&A insurance.
Source: Asia Insurance Review
