Reps and warranties rates down sharply in 2023: Marsh

Rates for transactional risk coverage declined sharply last year, as capacity expanded and mergers and acquisitions activity continued to slow, Marsh LLC said in a report Tuesday.

Pricing declined in all regions and the volume of transactional risk limits the broker placed globally fell to $49.0 billion from $59.3 billion in 2022.

In North America, rates for primary layer representations and warranties and warranty and indemnity coverage fell 26% last year, while rates declined 32% in Europe, Middle East and Africa, 25% in Asia and 40% in the Pacific region.

Primary layer representations and warranties insurance rates on policies placed by Marsh in North America by December 2023 were more than 50% lower than the peak rates seen in January 2022 – the lowest in more than a decade.

In North America, the volume of transactional risk limits placed by Marsh increased 10.5% to $21 billion, but the number of deals that Marsh worked on fell to 555 from 608.

Elevated interest rates, persistent inflation and geopolitical turmoil led to a 24% decline in the number of M&A deals in the region last year.

Private-equity transactions, which have fueled demand for representations and warranties insurance in North America, declined by more than 7% last year, while aggregate transaction value fell by close to 30%.

As a result, more insurers were chasing fewer — and smaller — transactions in 2023, leading to dramatic changes in the reps and warranties marketplace, the report said.

“While we anticipate an increase in M&A activity in North America in 2024, we believe the current insured-friendly rate environment will continue in the short to medium term,” Marsh said.