The report found that demand for transactional risk continued to grow during the first half of 2015, with an overall increase of 15% year-on-year, in terms of limits placed by Marsh. In addition, there is a trend for deal makers to include title insurance as part of the transaction in Europe.

“The demand for transactional risk insurance on M and A [merger and acquisition] transactions continues to grow rapidly, as competition among acquirers continues to remain intense,” said Karen Beldy Torborg, global practice leader for Marsh’s Private Equity and M&A Services Practice. “Dealmakers, both from the private equity and corporate space, are increasingly using insurance capital to get deals over the line, and we don’t see this trend subsiding anytime soon.”

Private equity firms continue to be the heaviest users of transactional risk insurance, said the report, as they seek ways to reduce indemnity requirements when buying and make clean exits when selling. Corporations also are becoming more comfortable with using transactional risk insurance—especially companies in the U.S. and Asia-Pacific and companies that are buying or selling other companies on a regular basis.

The report points to the growth in capacity and availability in this niche insurance area as another example of traditional insurers expanding from traditional P&C lines into more complex, solution-oriented specialist classes of insurance.

Flow of capital

Surplus levels typically remained at or near record levels, the report said, helping to drive the competitive marketplace during the second quarter. The significant M&A activity in 2015 could be seen as a possible reaction to companies’ appetites for growth and differentiation in an increasingly competitive environment. Alternative capital continues to flow into the industry, according to the report, and it’s creating an additional source of risk transfer, fueling competition and helping to drive rate levels lower.

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Innovative coverages are being created as insurers look to differentiate their offerings from their competitors. Emerging risk issues, such as cyber, provide a means for the industry to grow, the report says, especially as overall profitability remains relatively high.

In addition, insurers are continuing to enhance their pricing methods, creating the ability to further segment their portfolios of risk. Segmentation allows insurers to price business on average more profitably and is part of the overall dynamic helping to create a competitive environment.

No global-impact catastrophe losses

Another factor in decreased rates is that global natural catastrophe losses are continuing at historically low levels, helping drive insurer profitability and removing near-term catalysts for increased rates. Outside of natural catastrophe losses, there has been a relative lack of other large-impact loss events as well, the report noted. For example, security class actions have remained at historically low levels during the first have of 2015.

The newer emerging risks, such as cyber, are creating a need for additional insurance and risk transfer solutions, the report said. Given the importance of cyber risk to organizations of all sizes globally, it’s likely to create a need for additional insurance and risk transfer solutions. Marsh will be paying careful attention to its impact on the overall market environment going forward.

For more information or to obtain a copy of the report, click here.