Representations and warranties premiums down in first half: Lockton

Premiums for representations and warranties insurance continued to fall in the first half of this year, but an uptick in M&A activity and increased pricing pressure have caused a slight hardening of rates, according to a report issued Tuesday by Lockton LLC.

M&A volume remains well below its 2021 peak, but Lockton is “cautiously optimistic” that a stronger rebound in dealmaking activity is possible in 2025.

Current average premium rates range between 2.3% and 2.7% rate-on-line depending on size, sector, and transaction complexity, Lockton said in its 2024 Transaction Liability Market Update for the Americas.

The slower M&A recovery, combined with the significant capacity and resources of insurers, has led to “some of the lowest rates in the history of the RWI market,” Lockton said in the report.

Policyholders continue to experience favorable terms, with lower initial and drop-down retentions, fewer deal-specific exclusions and limited modifications to underlying representations and warranties in purchase agreements.

Pricing appears to be modestly on the rise, but retention levels seem to have stabilized across transactions, regardless of deal size, with limited exceptions, Lockton said.

“A tempered inflationary outlook, along with further anticipated interest rate cuts, should foster an environment conducive to M&A. However, the administration change in the United States will invariably invite some uncertainty,” Lockton said.

Protectionist policies could potentially spark additional inflationary concerns and curb the momentum of incremental rate cuts. On the other hand, a more relaxed regulatory environment could help spur M&A activity, Lockton said.