b'Mergers & Acquisitions | Transactional Liability Insuranceand sellers became required to demonstrate that aplaced on underwriters during 2020 to not only sufficiently high level of due diligence had beenwin deals in a depressed market with a reduced conducted prior to the acquisition or sale into theability to conduct full, traditional diligence (i.e., site extent of any potential impact that COVID-19 mightvisits), the potential for claims to rise in number have in causing a breach of warranty. during 2021 cannot be ignored.LOOKING FORWARD ClaimsDespite the shroud of COVID-19 enveloping globalUnsurprisingly, COVID-19 has loomed large in the W&I markets, it is important to note certain W&I trendsinsurance world during 2020, particularly so when it from 2019 which continued to develop and buildcomes to claims trends. Whilst we are yet to see the during 2020.impact and application of COVID-19 exclusions and In 2020 we saw increased demand for synthetic W&Iother amendments to policy wordings in the market packages which has been on the rise for a few yearsarising from the pandemic, we have seen that where but still not commonplace. This is likely to be some- buyers have purchased target companies in the most thing that becomes further utilized when moreaffected industries (retail, leisure and travel) that distressed M&A deals come to the market, whereseemed like a good deal before 2020, those buyers sellers (usually being the management team or anare now looking for ways to recover losses suffered as insolvency practitioner) can often be reticent toa result of COVID-19. That means more scrutiny of stand behind warranties being given under a stockwarranties and the insurance position, giving rise to a purchase agreement.higher volume of claims, including those not necessar-ily connected with COVID-19. We expect this trend to Hybrid policy requests (UK/EU coverage withcontinue throughout 2021; whilst insureds may have US-style underwriting) were increasingly seen byspent 2020 fire-fighting in order to keep target compa-underwriters in 2020. The mechanics and approachnies running and to stem losses, as the world slowly taken by underwriters to these requests continue totransitions to its new normal, insureds will find that they be developed and streamlined. Nevertheless, W&Ihave more time and resources to identify and pursue providers have shown willingness to engage with aroutes of recovery, including W&I policies. hybrid approach, not least because of the increase in pricing that insurers can charge when incorporating2020 has also brought a continuation of trends US-style underwriting into the process. We have alsothat we were already seeing in 2019: the number seen a move from underwriters simply offeringof claims is increasing, and the size of claims is US-style enhancements to UK style policies, forincreasing. Claims continue to be dominated by example, excluding general disclosure of the databreaches of financial statements, tax and key room, to offering a US style of underwriting whichcontracts warranties and we expect this to con-incorporates the US underwriting process as well astinue to be the case.coverage position and approach to risk generally,In previous editions of our Year in Review, we have e.g. fewer exclusions than European style policies.noted that W&I insurance has developed from Wariness should still be paid, however, to the futurebeing seen as a novel product to an increasingly in terms of claims. Estimations from some underwrit- prevalent as a tool for parties in M&A transactions ers now place claims occurring on average for one into manage investment risk. As the market and the every five policies, and in larger numbers toooftenproduct mature, we continue to identify challeng-exceeding amounts of $10 million. With the pressureing issues in the drafting and interpretation of warranties and policy wordings. MAYER BROWN 33'