Smaller mergers and acquisitions (M&A) deals may pose greater transaction risk insurance (TRI) exposure than many market participants assume, according to a new report from Tokio Marine HCC (TMHCC).
The report, based on an analysis of more than 500 claims and payouts exceeding US$140 million, found that 80% of TMHCC’s most severe losses arose from deals with an enterprise value below US$250 million.
The findings contrast with the industry trend of offering low or zero retentions on policies for smaller transactions, even as capacity for transactional risk coverage has expanded.
Previous market data from Marsh’s latest transactional risk insurance report shows how rapidly appetite for these products has scaled, with the broker placing US$67.8 billion in transactional risk insurance limits across more than 2,750 policies as global M&A activity reached US$3.4 trillion in 2024.
The 38% year-over-year increase in limits placed highlights how TRI has become embedded in competitive auction processes and private equity-backed deals.
“Our claims data tells a clear story: deal size is not a reliable proxy for risk,” said Naomi Barnes (pictured above), senior claims counsel and TRI lead at TMHCC. “Our experience shows that smaller deals can still produce significant losses. Every M&A transaction, large or small, carries material breach of warranty exposure.”
TMHCC’s analysis also points to a shift in the timing of claims notifications under TRI policies. Historically, claims reported more than three years after policy inception made up less than 10% of all notifications, with some years recording no such late claims at all.
In 2023 and 2024, however, claims notified after three years accounted for about 20% of total notifications. In 2021, claims made within the first year of policy inception represented more than 65% of all notifications, but by 2024 that share had dropped to just over 20%, which TMHCC interprets as evidence that claims are emerging later in the policy lifecycle.
The report cites several possible drivers for this trend toward later notification. As the TRI market develops, insureds and brokers have become more familiar with policy wordings and how coverage applies, while the broad use of three-year general warranty periods and a more volatile macroeconomic backdrop may also be influencing when buyers decide to notify.
Claims manager Carlos Fane said the market is maturing in ways that are reshaping expectations around the timing and structure of claims. He noted that as buyers, sellers and brokers grow more sophisticated in understanding TRI coverage, TMHCC is seeing more claims arise later in the policy period, which he said has implications for risk pricing and policy design.
Previous commentary from Liberty GTS president Rowan Bamford also suggests that cross-border deals “inherently carry more risks than domestic transactions,” particularly amid trade policy uncertainty, the war in Ukraine and political shifts in Europe.
Those dynamics are seen as supporting further demand for warranty and indemnity and other transactional risk solutions, especially where dealmakers seek to manage jurisdictional, regulatory and execution risk.
The publication of TMHCC’s report comes as global M&A activity continues to be affected by economic and geopolitical conditions. Despite those headwinds, deal-making showed signs of recovery in 2024, with global M&A deal value up 15% as of early December and global deal volume 7% higher year to date, according to Bain & Company.
