APAC M&A insurance scene on the uptick: report

Activity is expected to be strong in 2021 backed by a promising Q1.

The Asia Pacific M&A insurance scene is on an upward trend despite a small setback due to the pandemic, reports BMS Group, as the segment has been emerging as a value-added tool for transactions over the past few years.

The trend is expected to continue going up in 2021, but the use of M&A insurance in the region is still low compared to Europe, the UK, and North America. APAC contributed 5.7% of all policies placed globally in 2020.

M&A transactions were robust across various industries in Asia with sectors such as technology and consumer business and jurisdictions like Vietnam and China taking the lead, the report said. Forecasted M&A activity is strong for 2021 due to a "promising" first quarter, with a key driver being global private equity funds’ growing focus and allocation to Asia. 

The average premium rate in APAC in 2020 was 1.31% of the policy limit, lower than the US (2.85%) but higher than Europe (1.06%) and the UK (1.02%). The average policy limit as a percentage of the enterprise value was 25% in Asia.

M&A insurance has not yet witnessed a n enthusiastic uptick in Asia compared to North America and Europe, BMS noted, with the segment still nascent in China and India due to unfamiliarity with risk transfer solutions. Meanwhile, usage in hubs such as Singapore, Hong Kong, Seoul and Tokyo are becoming more regular.

“We expect an increase in both demand for and insurers’ appetite for Asian M&A transactions as deal parties seek to ring fence transactional liability. Insurers and brokers alike are already anticipating such increased demand by investing into additional resources in the region,” the report said.