TRANSACTIONLIABILITY

MARKETUPDATE2024

THEAMERICAS

LocktonCompanies|3

CONTENTS

TheRWILandscape

4

Secondaries

10ClaimsAnalysis12OverviewoftheTaxInsuranceMarket24IntangibleAssetandContingentRiskMarket

26

2|LocktonMarketUpdate

4|LocktonMarketUpdateLocktonCompanies|5

THERWILANDSCAPE

Whilemanyprognosticatorshadanticipatedasharpincreaseindeal-

makingfor2024,suchreboundwasmutedduetoachallenging

macroeconomicenvironment,asregulatoryandgeopoliticalheadwinds

persisted.M&Avolumeremainswellbelowthepeaksof2021,butwehaveseengreenshootsofelevatedactivityandarecautiouslyoptimisticthis

year’spositivemomentumwillcarryinto2025.

TheslowerM&Arecovery,combinedwithsignificantrepresentations&warrantiesinsurance(“RWI”)carrier

resourcesandcapacity,hasledtosomeofthelowestratesinthehistoryoftheRWImarket.Whilepremiums

continuedtofallinthefirsthalfof2024,anincrementaluptickinM&Aactivity,coupledwithincreasedcarrier

pressureoninsurancepricing,seemstohavecausedthemarkettohardenslightly,thoughstillfarfromthehighsofearly2022.

LOW,BUTINCREASINGPREMIUMS

GiventhecompetitiveandcrowdednatureoftheRWIlandscape,otherRWItermscontinuetobeinsured-favorable,includinglowerinitialanddrop-downretentions,fewerdeal-specificexclusions,andlimited

modificationstounderlyingrepresentationsandwarrantiesinpurchaseagreements.

Currentaveragepremiumratesrangebetween2.3%and2.7%rateonlinedependingonsize,sector,and

transactioncomplexity.Notably,thereappearstobeanincreasingspreadbetweenmarkets,withsomecarriers

chargingahigherpremiumwhilelookingtodifferentiateonotherterms,suchasretentions,gross-upcoverage,orextendedpolicyperiods,andhighlightingessentialsoftfactors,suchasexceptionalclaimsservicing.Thechartbelowillustratesthelatesttrendinrates.

AVERAGERATEONLINEBYQUARTER(Q12021-Q32024)

RATEONLINE

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

Q1Q2Q3Q42022

Q1Q2Q3Q42023

Q1Q2Q3

2024

Q1Q2Q3Q42021

THERWILANDSCAPETHERWILANDSCAPE

INCREASINGDEALSIZE&LIMITSPURCHASED

TheaggregatedealvaluethroughQ32024increasedoverthesameperiodintheprioryear,demonstratinganexpandedbuyerinterestinlargerdeals.ThistrendhasalsocarriedovertoRWIpolicies,withanincreaseintheaveragetotallimitplacedasillustratedbythechartbelow.Whileprivateequitysponsorshadshiftedtheirfocustoadd-onacquisitionsinatighteneddebtfinancingenvironment,wearestartingtoseesignsofanincreased

appetiteforlargerplatformacquisitions,whichishelpingdriveupdealsizeandacorrespondingincreaseinlimitspurchased.

AVERAGELIMITSIZEBOUNDBYQUARTER(Q12022-Q32024)

STABILIZED,LOWERRETENTIONS

Whilepricingappearstobemodestlyontherise,retentionlevelsseemtohavestabilizedacrosstransactions,regardlessofdealsize(withlimitedexceptions).Inlastyear’sreport,wehighlightedthatcarrierswereofferingretentionsbelow1.0%ofenterprisevalue(“EV”)andbecomingmoreaggressivewithinitialretentions

approaching0.60%-0.80%ofEV.In2024,initialretentionslargelyseemtohavecrystallizedbetween0.50%-0.75%ofEVfortheinitialretentionand0.30%-0.45%ofEVforthedrop-downretention.

Althoughpremiumpricingcanvarybasedontheebbandflowofdealactivity,retentionsshowsignsof

stabilizingattheselowerlevels.Certaincarriersalsohavebeenofferingnilretentionsfor“true”fundamental

representationsandwarrantiesasawayofdifferentiatingtheirtermsfromcompetitors,althoughinterpretationofwhatconstitutesa“true”fundamentalrepresentationvariesfrommarkettomarket.

$35,000,000

$30,000,000

$25,000,000

$20,000,000

$15,000,000

$10,000,000

$5,000,000

$0

Q1Q2Q3Q42023

Thechartbelowreflectsthesteadydropinretentionlevelssince2022,withsignsoflevelingoffin2024.

INITIALRETENTIONBYENTERPRISEVALUETHROUGHYTD2024

1.0%

0.8%

%OFENTERPRISEVALUE

0.6%

0.4%

0.2%

0.0%

Q1Q2Q3Q42022

Q1Q2Q32024

FY2022FY2023YTD2024

upto$100M

$100M-$250M

$250M-$500M

$500M-$1B

$1B+

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THERWILANDSCAPETHERWILANDSCAPE

PUBLICSTYLEEXITSAREAGAINTHEMARKETEXPECTATION

Afteraslightdecreaselastyearintheuseofpublic-style,“nosellerindemnity”(“NSI”)dealstructures,wherebybuyershavenorecourseagainstsellersforbreachesofgeneralrepresentationsandwarranties(exceptinthecaseoffraud),theuseofNSIstructuresisincreasingagainasillustratedinthechartbelow.

AVERAGELIMITSIZEBOUNDTHROUGHYTD2024

100%

80%

64%

60%

57%

52%

40%

42%

20%

0%

LATINAMERICANEXPANSION

202120222023YTD2024

NSI

NSI(%oftotalRWIplacements)

LSI

WecontinuetoseehealthymarketappetitefortransactionsutilizingRWIintheLatinAmericanmarket,as

regionalbuyersandsellershavebecomemorecomfortablewiththeproduct,andcarrierscontinuetoexpand

Anestimated64%ofourplacementsin2024reflectedanNSIconstruct,whichismeaningfullyhigherthan

historiclevels.ThefrequentuseofanNSIstructure,

eveninabuyer-friendlyenvironment,islikely

attributabletothefamiliarityclientshavewiththeRWIproductandprocess,alongwithcarriers’increasing

comfortwithunderwritingtoanNSIstandard.

Whilecarriersonceattributedmeaningfulvalueto

sellersretainingsomeexposureasdemonstratedby

alowerpremiumorretentionforsuchstructures,

alongwiththematurationofthemarket,carriersare

attributinglessvaluetosuch“l(fā)imitedsellerindemnity”(“LSI”)deals,andinsomecases,offeringthesame

pricingregardlessofwhetherornotthesellerbearsaportionoftheretention.

theirjurisdictionalappetites.Commonjurisdictionsfortarget’soperationsinclude,butarenotlimitedto,Brazil,Chile,Colombia,andMexico.WhiletheRWImarketistypicallywillingtoconsideranytransactiononacase-by-casebasis,eachcarrierhasitsowndefinedappetiteinaspecifiedregion,takingintoaccountfactorssuchasthejurisdictionofthenamedinsured,governinglawofthetransactionagreement,dealsize,andindustry.

Recognizingtheincreasedlevelofdealactivityintheregion,werecentlyexpandedourM&AadvisorycapabilitiesinLatinAmericatoincludeadedicatedBrazil-basedteam.ThisunitworksinfullcoordinationwithourbroaderUSteamtoprovideourclientswithadditionalgroundsupportforRWIplacementsinLatinAmerica,SouthAmerica,

andtheCaribbean.

AstheRWImarketforGP-ledsecondariescontinuestomature,sodoestheappetiteofinsurancecarrierstoparticipateinsecondariestransactions.ManyoftheRWIinsurancecarrierswhoparticipateinbuyoutM&ARWIplacementshavemadeconcertedeffortstounderstandthesecondariesspace,withasubstantialmajorityofcurrentmarketcapacitynowactivelycompetingonGP-leddeals.Thesecarriershavehonedtheiranalysisoftherisksassociatedwithsecondariestransactionstounderwritethemeffectivelyand,asa

result,clientshavebenefitedfromacompetitivemarketplacewithincreasinglyinsured-friendlyterms.

Anotableevolutionofthesecondariesmarketoverthecourseof2024isthemyriadof

transactionsthatarebeingcategorizedundertheumbrellaofa“secondary”transaction,andforwhichRWImaybeplaced.Inadditiontoatypicalsingleassetormulti-asset

continuationvehicle(“CV”),weareseeing:

1.multi-assetdealsfromdifferentflagshipfundvintagesbeingplacedinasingleCV;

2.public-to-privatetransactions,bothSPACandtraditionalpubliccompanies,in

SECONDARIES

Thefirsthalfof2024carriedthemomentumoftheprioryear,andsaw

record-breakingsecondarymarketvolume,surpassingthepriorrecordsetinthefirsthalfof2022.Inthefourthquarterof2024,momentumslowedslightlyheadingintotheUnitedStatespresidentialelection,butactivity

hasresumedforanactiveyear-end.Wecontinuetomaintainapproximately60%ofthemarketshareonGP-ledandothersecondariestransactions,andwehavestructuredandplacedinsuranceonapproximately15-20%ofthenetassetvalue(“NAV”)/newmoneythathastradedhandsinGP-leddeals.

10|LocktonMarketUpdateLocktonCompanies|11

whichthereisaninvestorcash-outoption;

3.LPtransferdeals,includingECIandFIRPTAtaxcoverageinconnectionwiththeseLPtoLPtrades;

4.asset(s)beingplacedinaCVearlyinafund’sterm;and

5.creditfund,infrastructureandventurefundsecondaries.

WhilethereissomecorrelationbetweenthesecondariesmarketandthebroaderM&A

market,webelievethesecondariesmarketstandsonitsownasaresilientpieceofthe

broaderprivatemarketslandscape.Fifteenyearsago,punditspredictedthattheLP-LP

secondariesmarketwouldfadeaswerecoveredfromtheGlobalFinancialCrisis,butwereprovenwrong—webelievethesametobetruewithrespecttocurrentcautionarywhispersaroundaslowdowninGP-ledsecondarieswhenM&Aactivityreturnswithfervor.

ThematurationofthesecondariesmarkethasshownGPsandinvestorsthatthesestrategiesshouldremainavitaltoolformanagingcapitalandliquidity,andtheapertureofthe

secondariesmarketwillcontinuetoexpand.

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SINCEWEBEGANTRACKINGRWICLAIMMETRICS:

30%

REMAINACTIVE

2%

WEREDENIED

23%

HAVERESULTEDINAPAYMENTINEXCESSOFTHERETENTION

22%

SETTLEDWITHINTHERETENTION

ORWEREHELDINABEYANCEBY

AGREEMENTOFTHEPARTIES*

23%

WEREWITHDRAWNORINACTIVE

*(OFTENBECAUSELOSSISWELLWITHINTHERETENTION)SUBJECTTOAMUTUALRESERVATIONOFRIGHTS

CLAIMSANALYSIS

Todate,Locktoninsuredshaverecoveredmorethanhalfabilliondollars

(approximately$560million)toresolveRWIclaims.Ofthatamount,morethan$280millionwaspaidwithinthelasttwoyears.Whenaccountingforretentions,RWIinsurershaverecognizedlosstoLocktoninsuredstodateinexcessof$710million.

$280MILLIONPAIDLAST2YEARS

~$560MILLIONRECOVERED(TODATE)INRWICLAIMS

$710MILLION+HR)NSURERSONLOCKTONPLACEDPOLICIES

550

RWICLAIMSTOTAL

133

PASTYEAR

Intotal,ourclientshavesubmittedmorethan550RWIclaims,including133withinthepast12months.

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CLAIMSANALYSISCLAIMSANALYSIS

WhiledenialsofRWIclaimsremain

exceedinglyrare,theapproximate2%denialrateisactuallyartificiallyhigh.

Inparticular,someacquisitionagreementsrequirethebuyerto

makeagoodfaithefforttoseekrecoveryforlossincurredbya

breachundertheRWIpolicybeforebeingentitledtoalternativerelief,evenifaclaimfitssquarelywithinapolicyexclusion.

Accordingly,RWIclaimswilloccasionallybesubmittedasan

administrativeexercise,withthefullexpectationthatadenialwillbeforthcoming.Mostofthedenialstodatefallwithinthisbucket,makingcontesteddenialsexceptionallyrare.

CLAIMFREQUENCYONTHERISE

Thechartbelowillustratesthepercentageofpoliciesplacedeachyearfrom2019through2023forwhichatleastoneclaimnoticewassubmitted.Forpoliciesplacedin2019and2020,coverageforthegeneralrepresentations(typically

threeyears)hasexpired,andwethereforeassumethatmostoftheclaimsthatwillbemadeonthosepolicieshave

beensubmitted.However,dataforpoliciesplacedsince2021islessmature,asthereisstilltimeforadditionalclaimstobesubmitted;accordingly,percentagesofclaimsforthoseyearswillinevitablyincrease.

CLAIMFREQUENCY--ATLEASTONECLAIMSUBMITTEDPERPOLICY

20%

15%

10%

5%

0%

20192020202120222023

Asnoted,theforegoingfiguresreflectpercentagesofpolicieswhereatleastoneclaimwassubmitted.Inotherwords,thereisnodifferentiationbetweenapolicyunderwhichoneclaimissubmittedandoneinwhichtwoormoreclaimsaresubmitted.

Obviously,figuresincreasewhenwelookattruefrequency,whichismeasuredbytakingthetotalnumberofclaims

submittedarisingoutofpoliciesissuedinagivencalendaryearanddividingthatfigurebythetotalnumberofpoliciesissuedinthatyear,asillustratedinthechartbelow.

CLAIMFREQUENCY--TOTALCLAIMSSUBMITTEDDIVIDEDBYPOLICIESPLACED

20%

20%

15%

10%

5%

0%

20192020202120222023

Claimfrequencyisunquestionablyontherise,asapproximately15%ofpoliciesplacedbyusin2022havealready

receivedatleastoneclaim,andtruefrequencyforthatpolicyyearisalreadyslightlyover20%.Becausethereisstillatleastoneyearleftforinsuredstobringclaimsforbreachesofgeneralrepresentationsunderthosepolicies,thefigureswearecurrentlyreportingforthose2022vintagepolicieswillinevitablyincrease.

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CLAIMSANALYSISCLAIMSANALYSIS

Asnotedabove,dealswithNSIstructuresareprogressivelyincreasinginpopularity,accountingfor64%ofdealsplacedin2024,upfrom42%in2021.Carriersareattributinglessvaluetosellershaving“skininthegame,”likelydrivenby

analysisofclaimsdata,whichreflectsnegligiblevarianceinriskbetweenLSIandNSIstructures.

Ourdatapaintsasimilarpicture;thechartbelowcomparesthepercentageofpoliciesplacedwithLSIstructuresversusNSIstructureseachyearfrom2019through2023forwhichatleastoneclaimnoticewassubmitted.

Asshownbelow,whileclaimfrequencyfiguresforNSIwereslightlyhigherthanthoseforLSIdealsin2021and2022,thegraphactuallyflippedin2023,withhigherfrequencyforLSIdealsthanforNSIdeals.Thoughimmature,datafor2024showsastatisticallyidenticalfrequencyforLSIvs.NSIdeals.

NSIV.LSICLAIMFREQUENCY

25%

NSI

20%

LSI

15%

10%

5%

0%

2021202220232024

CLAIMSEVERITYONTHERISE

Withrespecttoseverity,smallandmedium-sizedpaymentsrepresentthemajorityofthenumberofclaimpayments,withpaymentsoflessthan$5millionrepresentingmorethan70%ofthetotalnumberofpaymentsmade.However,wecontinuetoseeverylargepaymentsaswell,with12%ofthetotalnumberofclaimpaymentsexceeding$10

million.We’realsoseeingatrendofincreasingseverity;whereasthat12%figurereflectsclaimpaymentsmadetoourclientssincewebegancollectingdata,18%ofthenumberofclaimpaymentsmadein2023exceeded$10million.

lessthan$1million

$1-5million

$5-10million

$10-20million

$20million+

16%

37%6%

CLAIMSEVERITY6%

35%

CLAIMSANALYSISCLAIMSANALYSIS

TYPESOFBREACHES

PERCENTAGEOFCLAIMSFILEDBYBREACHTYPE(2022THROUGHQ32024)

30%

20%

10%

0%

202220232024

FINANCIAL

STATEMENTS

COMPLIANCE

WITHLAWS

EMPLOYMENTASSETS&EQUIPMENT

TAXMATERIAL

CUSTOMERS/CONTRACTS

LITIGATIONENVIRONMENTALPRODUCT

LIABILITY

Thechartaboveillustratesthepercentageofclaims

filedbybreachtypebrokendownbythecalendaryearinwhichtheclaimswerefiled.Asageneralmatter,thepercentageofclaimsfiledbybreachtypehasremainedrelativelyconsistentoverthepastthreeyears.Breachesofthefinancialstatementsrepresentationarethemostfrequentlyreportedclaims,accountingformorethan

20%ofall2024notifications.Additionally,breachesofthecompliancewithlawsandtaxrepresentationscontinuetorankamongthetop

threeintermsoffrequency.

Ofcourse,the2024percentagesaresubjecttochangeasQ4numbersareaccountedfor,buttherearealsoacoupledifferenttrendstonoteatthisjuncture.Specifically,

breachesofthematerialcustomerand/ormaterial

contractrepresentationsdeclinedthispastyear;such

breachesaccountedfor13%ofallclaimsfiledin2022

and2023butarecurrentlydownto8%ofsubmissions

in2024.Also,therehasbeenaslightuptickinclaims

assertingabreachoftheenvironmentalrepresentations,upfrom1%in2023to4%in2024.

PERCENTAGEOFNUMBEROFCLAIMSPAID(BYNUMBER)(2022THROUGHQ32024)

40%

30%

20%

10%

0%

202220232024

FINANCIAL

STATEMENTS

COMPLIANCE

WITHLAWS

IP/ITEMPLOYMENTENVIRONMENTALLITIGATION

TAXMATERIAL

CUSTOMERS/CONTRACTS

Thechartaboveillustratesthepercentageofnumberofclaimspaidbybreachtype,netofretention,brokendownbythecalendaryearinwhichtheclaimswerefiled.The

percentagesofclaimspaidbybreachtypegenerallytrackthefrequencyofclaimsfiledbybreachtype,thoughthereareafewnotableexceptions.

Asinpastyears,themostfrequentlypaidclaimby

breachtypeisthefinancialstatementsrepresentation,accountingfor40%ofthenumberofclaimspaidby

breachtype,despitehoveringaround20%ofclaims

notifiedinthepastthreeyears.Claimsallegingbreachofthecompliancewithlawsandtaxrepresentationsalso

representsignificantpercentagesoftheoverallnumberofpaymentsmadebybreachtype,withthetopthree

categoriesconstitutingover75%ofallpaymentsmade.

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PERCENTAGEOFAMOUNTSPAID(NETOFRETENTION)BYBREACHTYPE(2022THROUGHQ32024)

2022

40%

20%

0%

ASSETS&ENVIRONMENTALLITIGATIONEQUIPMENT

Thecharttotheleftillustratesthepercentageof

amountspaidbybreachtype,netofretention,broken

downbythecalendaryearinwhichtheclaimswere

filed.Consistentwithprioryears,allegedbreachesof

thefinancialstatementsrepresentationaccountforthelargestamountofclaimspaidaswell,representingmorethan50%oftheclaimpaymentsmadethroughQ32024.Althoughtherewasaslightdeclineinthefrequency

ofmaterialcustomer/contractsclaimsbeingmade,

breachesofthatrepresentationstillaccountforasizablepercentageofoverallclaimpaymentsaswell,atabout

25%ofthetotalpaymentsmadein2024.

Alsoworthnoting,althoughclaimsallegingabreach

ofthetaxrepresentationaccountfor12-13%ofclaimsfiledandpaid,theymakeupjust4%oftheamountof

claimspaid.Indeed,thebiggestpaymentonasingle

taxclaimin2024was$1.9million,whereastherewereseveralpaymentsabove$25millionmadeinconnectionwithbreachesofthefinancialstatementsandmaterialcustomer/contractrepresentations.

MATERIAL

CUSTOMERS/CONTRACTS

IP/ITEMPLOYMENTTAX

COMPLIANCEWITHLAWS

FINANCIALSTATEMENTS

2024

2023

60%

CLAIMSANALYSISCLAIMSANALYSIS

TIMINGCONSIDERATIONS

ThechartbelowshowsthetimebetweenpolicyinceptionandclaimnotificationforallclaimsthathavebeennoticedarisingoutofpoliciesissuedpriortoSeptember30,2021(thatis,policiesforwhichthegeneralrepresentationsperiodhasexpired).

Consistentwithindustryaveragesand

expectations,nearlyhalfofclaimsarenotifiedwithin12monthsofpolicyinception,andnearly75%ofclaimsaresubmittedwithinthefirsttwoyearsofpolicyissuance.Although6%ofclaimsarenotifiedafter36months,mostofthose

claimsinvolveddealswithasplitsigningandclosing,suchthatthegeneralrepresentationextendedbeyondthreeyearsoftheinceptionofthepolicy.Notificationsofclaimspertainingtothecoveragefollowingtheexpirationof

thegeneralrepresentationscoverageperiodcontinuetobeexceptionallyrare.

6%

16%

24%

12%

TIMETONOTIFICATION

19%

23%

7-12months

13-18months

0-6months

CLAIMRESOLUTI