b'TABLE OF CONTENTSAs we have mentioned in prior Year in Reviewrisks that are usually subject to heightened articles, the trend and usage of warranty andunderwriting (although insured friendly coverage indemnity (W&I) insurance on transactions hasgenerally seemed to hold up). been generally increasing. That general upwardsWe had a number of reports in 2021 of insurers trajectory combined with the sheer volume of M&Afocusing on how buyers value a transaction with volume led to an extraordinary year for thesome excluding multipliers where that was transactional liability market in the UK.considered too high. In this article, we highlight some of the trends andWe saw an increase in buyers using insurance to changes that we have seen over the last year whendeal with known risks, largely tax risks, to take acting both for insurers of W&I Insurance policiesthose kinds of issues off the table in increasingly and for buyers of the product in M&A transactions.competitive auction transactions. Underwriting capacity constraints impactedThe lack of capacity also seemed to lead some deal terms and pricing forgoing coverage on transactions altogether. Due The transactional liability underwriting marketto the lack of coverage available and for speed, struggled to keep up with demand, particularlyconvenience and the desire to remain competitive towards the third and fourth quarter of 2021.in a bid process for a desired target, some PE Many underwriters reached their capacity orhouses have not taken out W&I policies in relation premium limits which led them having to stopto their transactions. The longer term effects of underwriting deals altogether as they hadthese decisions have yet to be felt, but it appears reached their capacity limits. This has a knock onthat forgoing W&I coverage has been borne out of effect in a number of ways: necessity as companies struggle to obtain Policy pricing increased, as would be expected,coverage, rather than a change in approach.especially towards the fourth quarter whenIncreasing post signing inception of policies insurers were reaching their capacity levelsThis is a trend that appears to be continuing into Although coverage typically remains at around2022, as we have seen a number of deals where 1%, in some cases it has risen to 1.5% or evenpolicies have been put in place after signing, and 1.9% of policy limit in the UK.even after completion. This seems to be a It became demanding to get certain dealscombination of buyers accepting the underwriting covered. For example, smaller deals or thosemarket capacity constraints and the advent of a involving more difficult jurisdictions orlarger number of competitive auction processes businesses to underwrite; with often only onethat do not allow sufficient time or resource to insurer quoting for the deal. complete a W&I underwriting process.Policy terms were not as insured friendly as theLooking forwardprior year; particularly in terms of exclusions withThe first month of 2022 has shown no signs of the insurers not as willing to take a view on certainM&A market abating and that shows in the TLI too. MAYER BROWN |37'