
Capability Overview
Mergers and Acquisitions12 of 12
This insight is part 12 of 12 in this Collection.
The ANZ M&A market showed promising signs of recovery in 2024, leading to a notable increase in insurance-bound deals compared with the previous year. Commentators remain optimistic that deal flow will remain steady throughout 2025, with strong demand for W&I insurance continuing.
As competition among insurers intensifies, markets are responding by offering broader coverage, aiming to attract more deals. In addition to the standard W&I product, insurers are developing innovative solutions to address the needs of distressed sellers and target companies, including a “synthetic warranty” product. “Synthetic” warranties have evolved to provide protection to buyers in circumstances where sellers may be unwilling or unable to provide the warranties, such as in distressed sales or auction processes. The insurer, rather than the seller, assumes liability for the synthetic warranty and a claim is made directly against the policy. Another notable shift is the introduction of lower minimum premiums for certain transactions, particularly within the small-to-medium enterprise (SME) sector, as insurers tailor their offerings based on target sector risk and coverage limits.
Claims notifications remain a consistent feature of W&I policies, with approximately one in five policies receiving a claim. Notably, 80% of these claims stem from deals with an enterprise value of less than AUD 500 million, underscoring the higher relative frequency of claims in smaller transactions.
In Australia and New Zealand, the most common deal risks leading to claims include compliance with laws, tax matters, and financial statements (see Figure 54). Breaches of litigation and employment warranties also feature prominently. Employment-related claims remain a particular area of caution for insurers, given the complexity of regulatory compliance and the evolving legal landscape. While due diligence around employment compliance has increased, insurers continue to view this as a high-risk area.
A recurring theme across many claims is inadequate disclosure during the due diligence process. Whether related to general “catch-all” information warranties or specific disclosures relevant to other warranties, failures to provide relevant disclosures or key information frequently contribute to claims.
Figure 54
Aon Data: Proportion of Notifications by Type of Breach
Post-deal integration plays a significant role in the timing of claims. While there is often a lag between closing and claim notification, nearly 25% of claims are reported within six months, and almost 50% are submitted within 12 months of closing (see Figure 55). Close to 100% of claims are filed within three years, aligning with the typical duration of W&I policy periods (excluding tax warranties). Growing awareness of W&I insurance among insured parties is expected to reduce this lag time as businesses become more familiar with notification requirements.
Figure 55
Aon Data: Timing for Discovery of a Breach (in months)
Looking at historical data, claims notifications saw a general downward trend from 2019 to 2022. While figures from 2022 onward remain incomplete — given that many policies are still active and potential claims are still developing — this decline may reflect the suppressed deal flow and reduced demand for W&I insurance in the immediate aftermath of COVID-19. However, with the market’s recovery, claims frequency is expected to remain robust, driven by increased awareness and adoption of W&I insurance.
Figure 56
Aon Data: Notification Rate by Policy Inception Year
Recent data suggests that claims submitted within 24 months of deal completion are trending slightly upward (see Figure 57). This trend reinforces the growing familiarity with W&I insurance, as well as the timing in which claim issues typically emerge post-closing.
Figure 57
Aon Data: Notification Rate by Policy Inception Year (Only Claims Made within 24 Months of Closing)
Despite increased awareness and faster notifications, the responsiveness of insurers to claims remains an ongoing challenge. There is a wide variance in claims expertise across insurers, and their ability to provide a positive claims experience largely depends on their willingness to dedicate resources to W&I claims handling. Claims service remains a key differentiator in insurer selection and continues to be a major focus for Aon’s clients.
The complexity of claims — particularly in assessing loss and establishing breaches — further slows the resolution process. Legal and accounting expertise is often required to support these claims, making the process more intricate and time-consuming.
There is very little Australian case law guidance on W&I insurance disputes. Most claims settle pre-action or on confidential terms. However, a significant judgment was recently handed down in February 2025 in DTZ Worldwide Limited v AIG Australia Limited [2025] NSWSC 12. In 2014, DTZ Worldwide Limited (DTZ) entered into a Share Sale Agreement (SSA) to acquire a group of companies from the United Group for approximately AUD 1.2 billion. The SSA included various warranties provided by the seller and stipulated that the seller would obtain W&I insurance, making the insurance the buyer’s sole recourse for any warranty breaches. The W&I insurance tower comprised a primary insurer and eight excess-layer insurers, with a total indemnity limit of AUD 300 million and a retention of AUD 12.15 million.
DTZ alleged that the seller breached accounting and disclosure warranties in numerous respects, in relation to a facilities management contract (FM Contract) in Singapore, alleging incorrect accounting treatment of certain payments, incorrect capitalization of certain mobilisation costs, and a failure to classify the contract as an onerous contract. DTZ claimed losses flowing from the breaches in excess of AUD 230 million.
Whilst the Court largely rejected DTZ’s asserted accounting and financial breaches and onerous contract claim, based on the complex facts of the case, the Court did consider that the disclosure warranties were breached, due to a failure to disclose matters that the Court agreed had a substantial impact on the FM Contract’s costs and on the company’s ability to meet the performance benchmarks in the FM Contract.
On the question of damages, the Court did not accept the assessment of DTZ’s Expert. Rather, the Court adopted a nuanced approach to calculation of damages by confining the period for calculation of damages up to the first benchmark period. The damages were calculated to be the difference between the present-day value of forecast profits under the FM Contract and the actual profits experienced due to the higher cleaning costs. The quantum of damages under this methodology were substantially lower than asserted by DTZ. Ultimately, the Court did not consider it necessary to make a specific finding on the quantum of damages because the primary-layer insurer had settled the claim against it prior to trial and the Court found that the quantum of damages fell below the attachment point of the first excess policy, such that there was no liability of the remaining defendants. In light of the Court’s finding on quantum, the claim was dismissed as against the remaining defendants, with costs.
Takeaway: Despite identifying a breach in the disclosure warranty that was material, the Court found that DTZ’s methods for assessing damages were unsubstantiated and speculative. Specifically, the Court noted that the use of a discounted cash flow analysis to ascertain actual value was appropriate, but adjustments made to the discount rate and cash flows were not appropriate, ultimately concluding that DTZ’s claims were not substantiated. This decision underscores the evidentiary challenges in pursuing high-value W&I insurance recoveries, especially concerning financial, accounting, or valuation matters. It also highlights the importance of accurate and comprehensive disclosure in corporate transactions to avoid potential liabilities. When providing materiality or knowledge scrapes, it is important to consider how this works if the warranties are impacted. Furthermore, the case emphasizes the necessity of adhering to established methodologies when assessing damages for warranty breaches.
As W&I insurance becomes a standard feature of M&A transactions, the efficiency of claims service has come under greater scrutiny. The claims experience varies significantly between insurers. While some insurers have built a strong reputation for fair and timely claims handling, others have been criticized for delays, overly technical arguments, and a defensive approach to claims resolution.
As the M&A insurance market matures, insurers are dealing with increasingly complex and high-value claims, testing their technical expertise, internal processes, and capacity to manage claims effectively. The costs associated with resolving claims can be high, particularly given the need for legal and financial analysis. This has, in some cases, resulted in more rigid, legalistic interpretations of claims — an approach that does not always align with client expectations or the commercial realities of deal negotiations.
Loss quantification remains a contentious issue. Insured parties often advocate for a broader interpretation of loss, while insurers scrutinize causation and the measurement of damages. Gathering the necessary evidence post-transaction can also be challenging, especially if the seller is no longer cooperative or available. While insured parties typically expect a straightforward payout, insurers undertake rigorous assessments of coverage, causation, and quantum.
In a field of ever-increasing competition, insurers are rising to the challenge, by recognising that claims service can be a powerful brand differentiator. Maturation of transaction liability insurance market has seen greater investment in claims expertise and a more streamlined claims assessment process. A positive claims experience can promote confidence in the product, enhance brand reputation and attract repeat customers. In an established market, we expect claims capabilities will continue to strengthen.