2024

Claimsbriefing

Exclusiveinsightsguidingglobaldecisionmaking

Emerging

trends

Noti?cation

trends

Third-partyclaims

Claims

severity

Claims

handling

insights

Claims

outcome

Contents

Introduction

2

Section1:

Notificationtrends

3

Section2:

Timingofnotifications

8

Section3:

Focusonthird-partyclaims

11

Section4

Contingentlegalriskinsurance

15

Section5:

Claimsoutcomes

17

2024Claimsbriefing1

2024Claimsbriefing2

Introduction

Claimsbriefing2024

“

Thelast24monthshavebeenchallengingforanyonewhoselivingisbasedon

thevolumeofM&Atransactions.

Inflationpressuresandhighinterest

ratesinmostglobaleconomieshave

reducedtheviabilityofmanyprivate

equityplays,andthishasimpactedthe

numberofdealseverywhere,especiallyatthelargerendofthemarket.Whilethiswas

thecasebeforethebeginningof2023,whatwasnotunderstoodwashowlongtheseconditionswouldlinger.M&A

RowanBamford

PresidentofLibertyGTS

LibertyGTSisoneofthe

largestandmostexperiencedM&Ainsuranceteamsinthemarket,withateamofmorethan90specialistsoperatingin10jurisdictionsacrosstheAmericas,AsiaPacific(APAC),andEurope,MiddleEast,andAfrica(EMEA).Wearealso

oneofthefewM&AinsurersinthemarkettohaveateamofdedicatedandexperiencedM&Aclaimsprofessionals

embeddedwithinourM&Aunderwritingteamacrossmultiplejurisdictions.

Weareproudtobeable

toleveragethisunique

combinationtoprovidean

in-depthassessmentinto

M&Ainsuranceclaimsviaourannualclaimsbriefing,nowinitsfifthyear,whichisbasedondatadrawnfromalmost525notificationsreceived

since2019.

transactionvolumesmayfinallybestartingtopickupagain,buttheyarestillsignificantlydownon2021levels.

Curiously,despitethesechallengingmarketconditions,wehavestillseenanumberofnewentrantslaunchintotheM&Ainsurancesectorandseveralexistingcarriersexpandtheirgeographicalfootprint.Thesenewentrantshaveattemptedtowinmarketsharebycuttingratesandbroadening

coverage.Theywerefollowedbymanyofthemonolinemanaginggeneralagents(MGAs)thatoperateinthisspacewho,withoutanyotherlinesofbusinesstofallbackon,riskedbeingstarvedofincomeiftheydidn’tcompete.Fortherest,itwasaquestionofshowingstrategicpatience,focusingondealswheretheyhadacompetitiveadvantageandavoidingtryingtowindealsatanycostbyeithercuttingpricingorexpandingcoverage.

Thisunderwritingdynamicwas,ofcourse,nevergoingtobesustainableforlongandweexpectthatrates—havingalreadybottomedoutfollowingthereturnofmorenormaldealmakingconditions—willnowstartto

increaseandthatcoverageenhancementswillbegintobeparedbackagainorbecomemoreexpensivetomoreaccuratelyreflecttherisk.

Inthemeantime,weatLibertyGTSwillcontinuetolooktofocuson

differentiatingourselvesfromourcompetitorsinotherways,including

viaourproventrackrecordofpayingvalidclaims,whichthisyearincludeda€46Mpayment—ourlargestever.Thisisbecause,inourexperience,

itisasmoothclaimsprocessthataninsuredendsupvaluingthemost

whenitisfacedwithadealthathasgonewrongandtheprospectofa

significantandunexpectedloss.That’swhysavvydealmakersneedtobuytransactionalriskinsurancefromtrustedpartnerswhoaresetuptodeliveranexceptionalclaimsserviceandareinthemarketforthelonghaul.

Choosewisely.”

2024Claimsbriefing3

Section1

Notificationtrends

1R&Winsuranceiswidelyknownaswarrantyandindemnityinsurance(W&I)outsideoftheU.S.

DatabasedonR&Wnotificationsreceived

betweenJanuary1,2021andAugust31,2024

OurglobalR&Wnotificationcountfellin2023[seeFigure1].

Overall,wereceived120representationsandwarranties(R&W)1notifications

acrossallofourregionsin2023:ayear-on-yeardecreaseofapproximately21%.Thisdeclineisdowntothedrop-offindealmakingfromQ32022onwardsandisasignthattheheightenednotificationactivitythatwehaveseenoverthelastfewyearsfollowingtheM&Aboomattheendof2020andthroughout2021isnowbehindus.

Nevertheless,ithasstillbeenaverybusyyearforourclaimsteamgiventhesize

ofourexistingclaimsinventory,whichhasgrownconsiderablyoverthelastfew

years.WhilstsomeM&Ainsurershavestruggledtokeepupwiththedemandsofservicingandresolvingtheseclaims,others—likeLibertyGTS—thathaveinvestedintheirclaimsfunctionbybuildingoutaspecialistin-houseteamdedicatedentirelytohandlingM&Ainsuranceclaims,havebeenabletocontinuetodeliverthehighstandardsofserviceandcarethatourclientsandbrokersexpect.

Aswemoveinto2024,ourmonthlynotificationcounthascontinuedtofall:we

onlyreceived53R&Wnotificationsinthefirstsixmonthsofthisyearcompared

to71inthefinalsixmonthsoflastyear.However,wedonotexpectthatour

notificationcountwilldropmuchfurtherfromitscurrentlevels.Thisisbecause

ourpolicycounthasstartedtopickupagain,drivenbyanincreaseindealactivity,particularlyatthelowertomid-endofthemarket.Itwill,ofcourse,takeawhileforthistofeedintoanincreaseinclaimsactivity,butourcurrentexpectationisthatournotificationcountwillpickupagaintowardtheendoftheyearandintonext.

Notificationcount—globalview

20

18

16

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4

2

0

JanFebMarAprMayJunJulAugSepOctNovDec

2021202220232024

Figure1

2024Claimsbriefing4

Section1

OurAmericasregionsawthesmallestdeclineinR&Wnotificationcountin2023andwastheonlyregiontoregisteranincreaseinnotificationsinQ12024[seeFigure2a].

Wereceived76R&WnotificationsacrosstheAmericas

regionin2023:ayear-on-yeardecreaseofapproximately

10%.Thiswaslargelydowntoaquietendtotheyearwithonly16notificationsreceivedinQ42023(comparedto29duringthesamequarterin2022).However,wearealreadyseeingsignsthatnotificationactivityisstartingtotickup

again.Indeed,theAmericaswastheonlyregiontoregisteranincreaseinnotificationsinQ12024vs.thepriorquarter,with23notificationsreceived.Inaddition,thetotalnumberofnotificationsreceivedthroughtotheendofAugust(52)istrendingslightlyaheadoflastyearforthesameperiod(50).

OurEMEAregionsawanotabledrop-offinR&Wnotificationsin2023[seeFigure2b].

Wereceived35R&WnotificationsacrosstheEMEAregionin2023:ayear-on-yeardecreaseofapproximately28%.

However,thiswasstillabovethefigure(of32)for2021,

whichshowsthatclaimsactivityisstillhighcomparedto

historicstandards.IthasbeenaveryquietstarttotheyearwithonlyfivenotificationsreceivedinQ12024,butclaimsactivityhaspickedupsinceandweexpectthistocontinueastheyearprogresses.Indeed,inAugust,wereceivedthehighestnumberofnotificationsinonemonthsincetheturnoftheyear.

OurAPACregionsawthelowestnumberofR&Wnotificationsinthreeyears[seeFigure2c].

Weonlyreceived9R&WnotificationsacrosstheAPAC

regionin2023.Thisrepresentedasizeabledecreaseonthe19notificationsthatwereceivedin2022.Itisthelowest

numberofnotificationsthatwehavereceivedinthisregioninthreeyears.ThisyearhasbeenanotherquietyearsofarwithonlythreenotificationsreceivedthroughtotheendofAugust.

Notificationtrends

Figure2aNotificationcount—Americasview

16

14

12

10

8

6

4

2

0

JanFebMarAprMayJunJulAugSepOctNovDec

2021202220232024

Figure2bNotificationcount—EMEAview

10

9

8

7

6

5

4

3

2

1

0

JanFebMarAprMayJunJulAugSepOctNovDec

2021202220232024

Figure2cNotificationcount—APACview

7

6

5

4

3

2

1

0

JanFebMarAprMayJunJulAugSepOctNovDec

2021202220232024

DatabasedonR&WnotificationsreceivedbetweenJanuary1,2021andAugust31,2024

Section1Notificationtrends

2024Claimsbriefing5

OurdatashowssomevarianceinnotificationfrequencybetweendifferentYOAs

[seeFigures3and4ato4c].

Ourdatashowsthatwehavereceivedanotificationon

approximately18%ofour2019yearofaccount(YOA)R&Wriskstodate.Thesepoliciesarenowall“off-risk”foraclaiminrespectofthegeneralwarranties.Inthelast18months,

wehavereceivedjustfournotificationsinvolving2019YOArisks,allofwhichwereondealswherewehadalreadyseenapriornotification.Thesenotificationsallinvolvedtaxissues,butnoneinvolvedsignificantamounts.

Wehaveseennotificationfrequencyfallbackslightlyonthe2020YOAvs.2019YOA,althoughtherearesomeregionaldivergencesinourdata.IntheEMEAregion,notification

frequencyhasbeencloselytrackingthedatafortheprior

yearandcurrentlystandsat21%.InboththeAPACregion

andtheAmericasregion,notificationfrequencyhasbeen

runningsignificantlybehindthe2019YOAwhencomparedtotheequivalentperiodinitslifecycle.However,inthe

Americasregion,thegaphasclosedoverthelastfew

quartersduetoanuptickinthenumberofnotificationsthatwehavereceivedinthefinalmonthsofthegeneralwarrantyperiodinthisregion.

Asnotedinlastyear’sclaimsbriefing,wehaveseena

notableincreaseinnotificationfrequencyonthe2021YOAvs.the2020YOA.TheincreasehasbeenmostpronouncedintheEMEAandAPACregions,withnotificationfrequencyinbothtrackingwellaheadofprioryears.Thereasonsfor

thisarepotentiallyvaried,butoneexplanationisthatitcouldbeaby-productofthefrenziedstateoftheM&Amarketin2021,whenmanydealswerecompletedundercompressedtimeframes.Itispossiblethat,insomeinstances,due

diligencewascompromisedintherushtogetdealsdoneandwasnotasextensiveorasprobingasitmightotherwisehavebeen,resultinginmoreissues—includingsomebigissues—beingmissed.Itmayalsobeasignofincreasedinstances

of“buyer’sremorse”frombuyerswhoboughtatthetopofthemarketin2021.Ofcourse,anysuchbuyerlookingto

bringaR&Wclaimwillstillneedtodemonstrateabreachofacoveredwarrantyandresultinglossstemmingfromthat

breach.Inthiscontext,itisimportanttorememberthatit

doesnotnecessarilyfollowthattherehasbeenabreachofwarrantysimplybecausearecentacquisitionhasturnedouttobelessprofitablethanexpectedorrunintounexpecteddifficulties.However,theseconditionsmightprovideabuyerwiththeincentivetomakeaconcertedefforttolookfora

R&Wclaiminanattempttorecoupsomeofthelostvalueincircumstanceswheretheymightnototherwisehavedone.

NotificationfrequencybyYOA—globalview

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612182430364248606672Inception

20192020202120222023

mosmosmosmosmosmosmosmosmosmosmos

Figure3

DatabasedonR&WnotificationsreceivedbetweenJanuary1,2019andJune30,2024

Section1Notificationtrends

2024Claimsbriefing6

Ourdataindicatesthatnotificationfrequencyhasdroppedagainonthe2022YOAand2023YOA.Thedrop-off

hasbeenmostpronouncedinEMEA,withnotification

frequencyonthe2022YOAand2023YOAcurrentlyrunning3%belowthe2021YOAwhencomparedtotheequivalentpointinitslifecycle.Thiscouldbeareflectionofthecalmerdealenvironmentin2022and2023,withdealstaking

longertocompleteandbuyerstakingadvantageofthelesscompetitivelandscapetoscrutinizebusinessesmoreclosely.

TheoneoutlieristheAmericasregion,whichhasactuallyseenanotableincreaseinnotificationfrequencyonthe

2022YOAvs.2021YOA.However,thisisnotthatsurprisingasour2022YOArisksareactuallymorematurecomparedtowhatwewouldusuallyexpectbecause—inareverseofthenormalwayofthings—agreaternumberwerewrittentowardthefrontendoftheyearwhendealflowwasstill

strongvs.thebackendoftheyearwhendealflowwasmuchslower.

NotificationfrequencybyYOA—Americasview

20

18

16

14

12

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8

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0

612182430364248606672Inception

20192020202120222023

mosmosmosmosmosmosmosmosmosmosmos

Figure4a

NotificationfrequencybyYOA—EMEAview

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612182430364248606672Inception

20192020202120222023

mosmosmosmosmosmosmosmosmosmosmos

Figure4b

DatabasedonR&WnotificationsreceivedbetweenJanuary1,2019andJune30,2024

2024Claimsbriefing7

Section1

Notificationtrends

NotificationfrequencybyYOA—APACview

16

14

12

10

8

6

4

2

0

612182430364248606672Inception

20192020202120222023

mosmosmosmosmosmosmosmosmosmosmos

Figure4c

DatabasedonR&WnotificationsreceivedbetweenJanuary1,2019andJune30,2024

TheproportionofR&Wnotificationsinvolvinga(potential)loss

whichisinexcessoftheretentionandisresultinginpaidorreservedclaimshasremainedfairlyconsistent.

Theproportionofnotificationsthatwereceiveinvolvinga(potential)lossthat

exceedstheretentionisholdingfairlysteady,rangingbetweenabout30%

and35%overthelastfewyears.However,withretentionsfallingoverthelast

36months,itmightbethatweseethisfigureincreaseoverthecomingyear(s).

Ofcourse,notallofthesenotificationsresultinaclaimbeingmadeunderour

policy.Insomecases,aclaimisnevermade,perhapsbecausetheinsuredisabletomitigatethe(potential)loss.Inothercases,wemighthaveanexcesspositionandthe(potential)lossfallsbelowourattachmentpoint.

Wehavemadeapaymentorreservedaclaimon2.5%oftherisksthatwewroteonthe2019YOAwithapproximately13.6%ofthenotificationsthatwehavereceivedonthisYOAresultinginapaymentorreservetodate.Thenumberisshowing

signsofincreasingslightly,butnotsignificantly,asitcurrentlystandsat14.4%forthe2020YOAand14.7%forthe2021YOA,whicharebothlessmatureYOAsandwherewehaveanumberofongoingwhicharestillatanearlystagewhichwehaveyettopayorreserve.

2024Claimsbriefing8

Section2

Timingofnotifications

AhighproportionofR&Wnotificationsinvolvinganallegedbreachofageneralwarrantyarereceivedwithin12monthsofclosing[seeFigure5].

ThegeneralwarrantyperiodhasnowexpiredonalloftheR&Wpoliciesthatweissuedin2019and2020.Wecan,therefore,usethenotificationdatawehaveforthesepoliciestoprovideinsightsintothetimingofnotificationsinvolvinganallegedbreachofageneralwarranty.

Thedatashowsthatahighproportionofournotifications—49%—werereceivedintheinsured’sfirstyearofowningthetargetbusiness(Year1).WesuspectthattheheavyweightingtoYear1ispartlybecausesomeregularusersoftheproduct,assistedbytheirdeallawyers,arenowcarryingoutapost-closingreviewofthe

targetbusinessasamatterofcourse.Thisisinpartinformedbypreviousclaimsexperience,withthespecificobjectiveofquicklyidentifyingpotentialbreachesinrespectofwhichtheycanmakeaclaim.

Thereisthenasteadydeclineinnotificationactivityfromthispointonwards,with27%ofnotificationscominginthesecondyearofownership(Year2)andonly14%cominginthethirdyearofownership(Year3).

Mostnotificationsinvolvinga(potential)lossof$1m+arereceivedwithin24monthsofclosing,butwestillseesomesignificantissuesbeingnotifiedinYear3[seeFigure6].

Wecanalsousethisdatatoprovideinsightsintothetimingofourmoresevere

notificationsinvolvinganallegedbreachofageneralwarranty(i.e.,anynotificationwherethe(potential)lossismorethan$1Minexcessoftheretention).

Gap(inmonths)betweenclosingandnon-taxnotifications

49%—Year1

27%—Year2

14%—Year3

3%—36months+

7%—Pre-closing

Figure5

Gap(inmonths)betweenclosing

andnon-taxnotificationsinvolving(potential)lossof$1M+

49%—Year1

27%—Year2

21%—Year3

3%—Pre-closing

Figure6

Databasedonnon-taxR&Wnotificationsreceivedon2019and2020YOA

2024Claimsbriefing9

Section2

Timing

ofnotifications

(sometimesless).However,withmorelargeclaimsbeing

receivedinYear3,weexpectthatmoreM&Ainsurersare

likelytoscrutinizemorecarefullyhowtheyarepricingfor

extendingcoverbeyond24months.Insomeregions,suchasEMEA,thiscouldincluderevertingtoofferingthisonlyasacoverageenhancementforwhichanadditionalpremiumispayableaswasthecasehistorically.

Thisdatashowsthat49%ofthesenotificationswere

receivedinYear1.Thisisn’toverlysurprisinggivenour

previouscommentsaboutpost-closingreviewsbecomingmorecommon,coupledwiththefactthatitstandstoreasonthatamoresignificantissueismorelikelytocometolight

soonerthanalesssignificantissue.

Afurther27%ofourmoreseverenotificationswere

receivedinYear2,withapproximatelyhalfoftheseinvolvingaccountingandfinancialissues.Thisisprobablybecausetheresultsofthefirstauditundernewownershipwillnormallybecomeavailableshortlybeforeorduringthiswindow,

whichwefindisacommontriggerforanotification.

Interestingly,21%ofourmoreseverenotificationswere

receivedinYear3,whichisanoutsizedamountbearing

inmindthatYear3notificationsonlyaccountedfor14%

ofourtotalnotificationsacrosstheseYOAs(seeabove).

Weareseeinganincreaseinthenumberof

instancesofnotificationsduringtheextendedreportingperiodofthepolicy[seeFigure5].

Eachyear,weseeasmallnumberofnotificationsinvolvinganallegedbreachofageneralwarrantybeingnotifiedduringtheextendedreportingperiodwhichisincorporatedinto

mostR&WpoliciesintheAmericas.Theextendedreportingperiodprovidesaninsuredwithashortwindow—usuallybetweenfourand12weeks—tomakeanotificationevenafterthepolicyperiodhasexpired.Itisintendedtocaterforissuesthatonlybecameknowntotheinsuredinthedays

beforeexpiryofthepolicyperiodandwhichmightrequiremoreinvestigatingbeforethereisenoughinformationtomakeanotification.

However,insomecases,wehavefoundthattheissuesbeingnotifiedduringtheextendedreportingperiodhavebeen

knowntotheinsuredforalongtimeorinvolvealaundrylistofitemswithlittleornodetailaroundthem.Thisisn’tconsistentwiththeintendedpurposeoftheseclauses,

andweexpectthatsomeM&Ainsurersmayrespondto

thisdevelopmentbytighteninguptheirwordingsinordertoprecludeaninsuredfromrelyingontheextended

reportingprovisionifitlearnedabouttheissueinquestionmorethanafewweeksbeforeexpiryofthepolicyperiodor,perhaps,reducingtheextendedreportingperiodtoacoupleofweeks.

Wereceivedanumberofthesenotificationsinthelast

fewmonthsofthegeneralwarrantyperiod,includingone

wheretheclaimedamountisformorethan$100M.ThisisatrendthatwehaveseenrepeatedonsubsequentYOAs.

WefindthatnotificationslikethisaremuchmorecommonintheAmericaswhichsuggeststhat,inthisregionatleast,insureds(andtheirlawyers)aremoresystematicabout

assessingwhethertheyhaveapolicyclaimpost-acquisitionandaremorelikelytohaveprocessesinplacetodothis,

especiallytowardthebeginningandendofthepolicyperiod.However,thisalsopresentssomechallengesforinsurers,

particularlywherenotificationsreceivedlateoninthepolicyperiodarenotproperlyparticularizedorquantified,makingitdifficulttoassesstheirmeritandseriousness.Thesolutionmightbetorequirepolicyholderstofullyparticularizetheirclaimbytheendofthepolicyperiodorsoonafterwards.

Thiswouldstill,ofcourse,bemoregenerousthanthenoticeprovisionsinmostpurchaseagreements,whichtypically

requireclaimstobefullyparticularizedwithinamatterofmonthsafterdiscovery.

Thefactthatweareseeingsomesignificantissuesbeing

notifiedinYear3illustratesthataR&Wpolicyproviding

coverforwarrantybreachesforlongerperiodsoftime

comparedtoanuninsureddealcontinuestobeakey

advantage,wherethesellerwouldusuallyonlybepreparedtostandbehindthewarrantiesforamaximumof24months

Section2Timingofnotifications

2024Claimsbriefing10

WeareseeingsomeR&Winsurersadoptinga

recklessapproachtoextendingthepolicyperiodforgeneralwarranties.

Oneofthemorerecentcoverageenhancementsthathas

gainedsometraction,particularlyintheAmericas,isfor

insurers,inreturnforanadditionalpremium,tosyntheticallyclassifyalimitednumberofspecificgeneralwarrantiesas

fundamentalwarranties,thusprovidinglongercoverforthesewarrantiesthanwouldnormallybethecase.

Wehaveadoptedaverycautiousapproachtothis

enhancementandhaveonlyeveroffereditinfrequentlyandonacase-by-casebasis,drawingonourwealthofclaims

datatoevaluatetheprevalenceofclaimsincertainsectorsandestimatetheexpectedtaillengthforcertainclassesofrisk.However,wehaveseensomeMGAsgomuchfurtherthanthisandinsomecasesoffertoextendthepolicyperiodforallgeneralwarrantiesonsomedealsfromthreeyears

touptosixyearsfornoadditionalpremium,inanefforttodifferentiatethemselvesfromthecompetition.

Itwillbeinterestingtoknowifthecapacityprovidersthat

backtheseMGAsareawareofthisdevelopmentgiventheconsiderableamountofadditionalriskthatthiswillresult

inthemtakingon,particularlyinlightoftheincreasein

thenumberofthird-partyclaimsthatweareseeinginthe

Americas,whichcanoftentaketimetomanifestthemselves.Weexpectthatcapacityproviderswillstarttopushback

ontheircoverholdersofferingthisenhancementonce

theyrealizehowmuchadditionalexposuretheyaretakingon,andwethereforeexpectthree-yeargeneralwarranty

periodstoremainthenorm.Thisisasignofthegrowing

disconnectbetweenwhatsomeMGAs,withtheirfocusontop-linegrowth,arepreparedtoofferbywayofcoverage

enhancementsandwhatthemoreestablishedplayersintheM&Ainsurancemarketarepreparedtodo.

ThevastmajorityofR&Wnotificationsinvolvingtaxissuesarereceivedwithin36monthsofclosing[seeFigure7].

Weoftenhearcommentaryaboutthelong-tailnatureofaR&Wpolicybyreasonofthefactthatitprovidesatleastsixyearsofcoverforfundamentalwarrantiesandtax-related

issues.However,thenumberofnotificationsthatwereceiveinvolvinganallegedbreachofafundamentalwarrantyis

verysmallandareviewofourR&Wnotificationsinvolvingtaxissuesreceivedfrom2022onwardsrevealsthat70%

ofthesewerenotifiedinYear1andYear2.Afurther13%

werenotifiedinYear3andjust11%inYear4.Only3%—

comprisingthreenotificationsintotal—werereceivedmorethanfouryearsafterclosing.AlloftheseinvolvedEMEA

risksandnoneoftheminvolvedsignificantissues.Indeed,asthingsstand,wehaveonlyseenonetax-relatedissue

beingnotifiedonanAmericasriskmorethanfouryearsafterclosing.Thissuggeststhatt