Aon recently released a study analyzing the approximately 340 claims made on more than 2,450 rep and warranty insurance policies that it placed in North America between 2013 and 2019. Here are some of the highlights:
– More than $350 million above the policy retention has been paid by representations and warranties insurance to Aon clients in North America. More than $525 million in total loss has been recognized (when factoring in erosion of policy retention).
– 30% of claims have been resolved, 4% have been denied, 54% are active and 12% are inactive to date (ones in which no correspondence has been provided in over a year).
– Claims were made on 22% of all policies placed between 2013 and 2017; however, the percentage of policies notified of a claim between 2014-2016 gradually increased from 18.6% on policies issued in 2014 to 25.3% on policies issued in 2016.
– Claim size trended upwards in 2019, with an average claim payment of $10.7 million and 26% of all claims paid this year exceeding $10 million, largely due to the larger deal sizes (and proportionately larger insurance policies) that Aon worked on in 2017 and 2018.
– Deals valued over $1 billion have yielded a slightly higher claim frequency than smaller valuation bands, although only 9% of total claims made on these deals have resulted in a payment. This is lower than the average for smaller transactions.
Interestingly, the study found no discernible difference in the frequency of claims for transactions that included a seller indemnity (for breaches of any representations and warranties) compared to ones that didn’t.
Overall, Aon’s study found that claims under RWI policies increased by more than 400% between 2014 and 2018. That increase is largely attributable to the rapid growth of RWI policies over this period, but as noted above, the claims percentage rose from 18.6% on 2014 policies to 25.3% on 2016 policies. Due to the lag between closing and discovery of a breach, Aon says it is too early to determine whether the rise in claim frequency will continue for subsequent policy years.
-John Jenkins, DealLawyers.com April 7, 2020
