b'MERGERS & ACQUISITIONS|TRANSACTIONAL LIABILITY INSURANCEInsurers are looking to increase capacity to responddiligence has fallen short or valuations have been to market demand and we expect that trend toboosted by temporary COVID-19-related continue; though many in the market expect dealgovernment support, 2022 may well be the year volume to tail off after the second quarter in 2022. when these shortcomings are exposed. There is optimism that the M&A boom looks set to continue in to 2022. However, the prospect of risingClaimsinterest rates is looming large on the horizon for theThe increase in global M&A activity in 2021 has longer term future. If they materialise, this wouldbeen accompanied by markedly increased demand put a dampener on at least one of the key reasonsfor reps and warranties, or W&I, insurance to for growth over the last 12 months. support the growing number of transactions which, The UK also implemented the National Security andin turn, has been enabled by an increase in capacity Investment Act 2021 in January 2022, which willin the UK W&I insurance market. require certain transactions within 17 sensitiveWhilst there has been a notable move towards sectors to obtain government clearance prior tocarriers becoming more selective about the risks completion. This will need to be considered whenthey underwrite, overall the volume of W&I policies setting deal timelines, carrying out due diligencebeing written has increased. Of course, the fact that and throughout document negotiation to avoidmore W&I insurance policies are being written delay and manage uncertainty. With a five-yearlogically leads to the conclusion that more claims look-back period, it will also have a knock-on effectwill emerge, and we started to see the early signs of on W&I policies and coverage for transactionsthat coming to fruition during the course of last year within these sectors will likely hinge on clearancein the shape of widely-reported increases in the being obtained. number of notifications to W&I policies. As has been Some have suggested that the flurry of M&A activitynoted previously, a significant contributory factor to in 2021 gave rise to some haste, as competingthe generalized increase in claims activity has been bidders swooped into a competitive market. Ininsurance buyers growing awareness of, and some industries COVID-19 restrictions meantfamiliarity with, W&I insurance products and the prospective buyers were unable to visit business orprocess associated with claiming on such policies. carry out proper due diligence, leading to anWith regard to the types or size of deals which have increase in claims made shortly after the completiongenerated the most notifications over the past year, of deals. In the UK, around 10% of UK policiesthere has been something of a mixed bag. Some currently result in a notification. This rises to aroundmarket participants reported that so-called mega 21% in the Netherlands and Central and Easterndeals, commonly considered to be those with an Europe. 2021 saw a number of deals in Poland andEnterprise Value of in excess of 1 billion, attracted Hungary across sectors like logistics and real estate. a higher number of notifications as a proportion, Deals made hastily in the haze of a busy marketwhile others found it to be the smaller dealsare already beginning to give rise totypically less than US$250 millionwhich generated notifications. If there are cases where due 38|Global Insurance Industry Year in Review 2021'