Chapter 7: EMEA: Claim Frequency and Metrics

M&A Perspective: As flagged in our Claims Study 2024, we considered the M&A market factors in play at the time the policies were placed and the correlation to our claim statistics. 2021 is widely known as a “boom” year for M&A: a period of frenetic deal activity when demand for W&I insurance exceeded supply, leading to a short-lived hard market, with terms softening again by H2 2022 with more insurance capital in the market and a slowing of deal activity. It would seem the wider insurance market has seen proportionally more claims on policies from this period than the corresponding Aon data, with last year’s insurer results reporting 14.4% claim frequency for 2021, up by 5 percentage points to 19.4% this year (although Insurer Survey respondents changed slightly this year and impacted the data for year-on-year comparison). Possible reasons for this could be the speed of transactions, with less opportunity for diligence, and higher pricing in a more seller-friendly market, which may cause buyers to turn to insurance to seek recourse. It will be several years before we can comment conclusively on notification rates and settlements from policies placed in 2021.

In EMEA, we are seeing a marked increase in claim notifications year on year. Perhaps with this increase in claims notifications and a busy start for claims in H1 2025, it may be that we are now observing the results of the broader coverage offered post 2021. In preparing this report, we considered whether this might be the result of last-minute claims being submitted on 2021 policies that were expiring and/or a maturing W&I client base, with policyholders increasingly utilising their insurance cover for claims and not merely deal facilitation. On review of the Aon claims data, the proportion of 2021 policy notifications received during 2024 does not appear unusually high, which would suggest notifications are arising consistently within notification rate trends.

Key Takeaway: If we continue to see year-on-year increases in the number of notifications received, as seen in 2024, claims frequency may trend upward from the historical norms of approximately 20%.

Figure 35 illustrates the percentage of Aon W&I policies that have had a claim made against them from 2017 to 2024, alongside the results of the Insurer Survey (from 2017 to Q3 2024). The vertical black line separates the policy years that, consistent with broader industry approach, are now off risk for general warranties. 2021 is the most recent year to come off risk for general warranties and a year of particular interest due to the volume of M&A, tight time scales, and high valuations.

Figure 35
Claims Frequency by Policy Year

Under EMEA W&I policies, cover for tax and fundamental warranty breaches typically ends after a seven-year period and for general warranties, within two or three years of closing depending on the terms agreed. Therefore, although the post-2017 policy years show a lower claim frequency, these statistics are subject to change, as the policies remain on risk and the percentages will increase as new claim notifications are submitted.

Policies placed in 2018, in accordance with industry standards, are almost off risk completely, pending settlement of existing notified claims and any final tax or fundamental warranty notifications that may arise in the final year of the policy. The claim frequency for 2018 policies did not increase from the 20% reported last year and is in keeping with the market average. Consequently, we do not expect a change to the notification rate. Interestingly, the Insurer Survey data for 2018 shows a marked difference compared with Aon’s data, showing a notification rate of just 11.9% against Aon’s 20%. A possible explanation for this may be that back in 2018 some of the MGAs surveyed may have only been trading for a short time (if at all) and this is likely reflected in their data. Additionally, pre-2020 take-up of W&I insurance was reduced compared with 2020 and 2021, with a smaller data set prone to be skewed by outliers. The Insurer Survey data shows a peak of notifications in 2021, whilst Aon’s data sits at 14%, below historic highs.

Figure 36 shows Aon’s notification development as a percentage of total deals from 2018 to 2024. When we observe the development of notification rates in six monthly increments, we can see that the notification rate for policies placed in 2023 currently sits in the middle of the data set. The higher overall notification rates are seen for 2018 and 2019, with policies placed in 2019 and 2021 trending higher than policies placed in 2020 and 2022. It should be noted, however, that the data for 2024 is still developing and we expect the notification rate to increase. There is a proportionally high number of notifications seen on 2024 policies at the 6-month mark, and the 2024 rate is still developing at both 6 and 12 months at the point the data was taken for this study. The same can be said for the notification rate at the 18- and 24-month marks for policies placed in 2023, which notification rate may yet develop further.

Figure 36
Aon Data: Notification Development as a Percentage of Total Deals

Claims metrics by deal size

The 100–500m EV category sees a proportionally higher share of initial loss claimed compared with the total number of deals placed in this category, whilst 1bn+ transactions see both a higher proportion of notifications and a high proportion of initial loss claimed compared with the volume of deals placed.

Notwithstanding the larger concentration of deals in the sub-100m category in figure 37, both the sub-100 and 100–500m brackets each received 39% of claim notifications (i.e., proportionally fewer than the number of policies placed for these transactions) but transactions in the 100–500m category saw a much higher initial estimated loss figure.

M&A Perspective: Despite lower notification and loss rates on sub-100m deals, we see a volume of transactions within this deal size category and believe this is driven by a greater prevalence of owner-manager sellers with a very personally motivated interest in managing their exit liability.

Figure 37
Aon Data: W&I Claim Trends by Deal Size, Percentage of Aon Deals, and Initial Claimed Loss for the Period 2019–2024

Important to note

Under English law¹ an insured making a claim for breach of warranty is entitled to be put in the position it would have been in had the warranty been true, subject to the usual rules on remoteness and causation. This will ordinarily mean that the buyer is entitled to claim the “true” value of the company rather than the “as warranted” value. Therefore, claims based on the diminution in value of the company will rarely have the full articulated loss at the time of notification and this needs to be considered when looking at the initial claimed loss statistics. The initial claimed loss often changes as additional facts are uncovered or as a result of mitigation steps taken by the insured.

Figure 38 shows the development of notification rates, focusing on the frequency within each deal size band.

Figure 38
Aon Data: Average Notification Rate by Deal Size

As a proportion of overall M&A volumes, there are fewer deals with an enterprise value over 1bn; however, our broking team consider that a greater proportion of $1bn+ transactions are likely to be insured. For these bigger deals, there is typically a more complex underlying business with greater scope for warranty breach, which will usually be harder to diligence. It is not surprising that the data naturally shows a higher notification rate on 1bn+ transactions. As deal size increases, clients and their advisers navigate a tension between, on the one hand, both budget and timetable for due diligence against, on the other hand, the scope of due diligence work that can be delivered for a complex business. However, insurers typically price this into larger policies.

M&A Perspective: As deal size increases, clients and their advisors navigate a tension between, on the one hand, both budget and timetable for due diligence against, on the other hand, the scope of due diligence work desired for a complex business. However, insurers typically price this into larger policies.

¹ Oversea-Chinese Banking Corp Ltd v ING Bank NV [2019] EWHC 676