Removed "lead author" from start of paragraph 4

By Edward Carron

June 24 - (The Insurer) - M&A insurance payouts reached a new record in 2024, Aon said in a report published on Tuesday, with North America driving the surge in transaction-related claims.

Aon's Global Transaction Solutions Claims Study, which is based on the broker's proprietary claims data along with information collected from surveyed insurers, indicated a significant increase in claims activity for representations and warranties insurance (RWI), which is also known as warranty and indemnity (W&I) cover.

Last year some $1.75 billion in claims was facilitated by Aon alone, the report said.

Stephen Davidson, Aon's co-head of transaction solutions for North America, told The Insurer the surge in payouts was driven by a combination of increased deal volume, higher claim awareness and more complex transactions.

Davidson attributed the record-breaking year to "the increased deal volume in 2020 and 2021 now hitting the payout stage on claims”.

“The deal valuations and multiples may also be contributing to the higher median claim. And there is greater awareness of the RWI product and its potential as a risk mitigation tool when a breach is identified post closing,” he said.

Davidson said there was no indication that the increase in payouts was driven by deals becoming inherently riskier, "given the increase in data as detailed in our claim study, both dealmakers and underwriters likely are more aware of the potential risks and what to focus on during diligence".

"The continued claims activity, despite the increasing sophistication of both buyers and underwriters, just proves that RWI is valuable even when conducting thorough due diligence," he said.

Over the past three years, Aon said its North American claims team had facilitated more than 100 paid claims, including 39 claims in 2024 alone, recovering more than $300 million with a median payout of $5.5 million.

In the Europe, Middle East and Africa region, claims notifications surged by 26% in 2024, and W&I claims payments climbed significantly, representing over 35% of all paid claims for Aon clients in the region to date.

The Asia Pacific region showed diverse trends, with an increasing number of regulatory, litigation-related and disclosure-related claims.

India-based risks accounted for more than 30% of all Asian claims in 2024, driven by tax risks related to both cross-border treaty matters and domestic Indian tax issues.

Compliance breaches led North American RWI claims at 20%, followed by tax at 17% and contracts at 13%.

In EMEA, W&I claims were led by tax warranty breaches in frequency at 26%, however in terms of claims paid financial statement breaches were the biggest driver, at 27%.

In APAC, breaches of material contracts were the leading driver for W&I claims, accounting for 19%, followed by legal compliance, tax and licence permits, all at 12.5%.

Despite differing risk profiles, claim frequency and severity were evenly distributed across industries relative to their share of the overall deal pipeline.

“(RWI) has become an embedded part of dealmaking and risk mitigation, as evidenced through this most recent record year in claims payouts,” Davidson said.