Lockton has issued a set of guidelines for Australian businesses involved in cross-border mergers and acquisitions, underscoring the importance of integrating insurance planning from the outset of any transaction.
The advisory focuses on mitigating exposures tied to both historical liabilities and new operational risks following acquisition.
According to Lockton, Australian acquirers should treat insurance review as a core component of pre-deal due diligence.
This involves collecting detailed information about the target entity, including its legal identity, revenue and workforce data, asset positions, corporate structure, and operational footprint.
Information about the target's current insurance programs – such as policy limits, coverage periods, excess levels, and compulsory local requirements – should be reviewed alongside its claims history.
Exposure to US jurisdictions or business activities outside the acquiring firm’s core offering can trigger additional underwriting scrutiny.
Assumption of historical liabilities, Lockton noted, should be approached with caution and typically addressed through specific risk transfer mechanisms, such as run-off policies or contractual protections.
A key issue raised in Lockton’s guidance relates to the function of “Claims Made” insurance policies.
These policies respond only to incidents occurring after the policy start date, making run-off cover essential for liabilities originating before acquisition – particularly in relation to directors & officers (D&O) and professional indemnity (PI) exposures.
The firm also pointed out that while many insurance policies include automatic coverage for newly acquired subsidiaries, these provisions may be subject to specific thresholds.
Common limitations include acquisitions where the target contributes more than 20% of group revenue, holds over 25% of total assets, or operates in regulated sectors.
Automatic extensions typically do not apply to pre-existing liabilities, which remain with the seller unless specifically agreed upon and insured.
As such, due diligence should determine whether additional underwriting or policy amendments are needed.
Lockton recommends that Australian buyers notify their insurers as early as possible, supplying comprehensive information about the target and the nature of the transaction.
Involving insurance advisers from the outset allows for timely identification of coverage gaps and ensures any necessary adjustments are made before closing.
The advisory also recommends clarifying whether the seller will obtain run-off coverage or if the buyer should secure coverage for legacy exposures as part of the negotiation.
Warranty and indemnity (W&I) insurance can also be considered to manage risks arising from breaches of sale and purchase agreement terms.
The insurance guidance comes as dealmaking in the Asia-Pacific (APAC) region remains comparatively steady amid broader global volatility.
Data from GlobalData showed that M&A activity in APAC declined by 2% year-on-year between January and May 2025, a less pronounced drop than in other regions.
By comparison, deal volumes fell 4% in North America, 6% in Europe, 9% in the Middle East and Africa, and 12% in Latin America.
Notably, APAC mergers and acquisitions rose 4% during the same period, while private equity and venture capital deals contracted by 10% and 8%, respectively.
