Appetites, Trends, and Innovation
The landscape of Warranty and Indemnity (W&I) insurance is evolving, with pricing trends, policy structures, and claim activity seeing notable shifts across key regions. From the softening of pricing to insurers adapting retention levels and expanding coverage, businesses across Europe, the Middle East, and Southern Europe are navigating a dynamic environment. Below we will explore the current trends in pricing, policy retentions, regional activity, and claims in W&I and related insurance markets.
Pricing: Warranty and Indemnity (W&I) insurance pricing continues to soften, even as both claim frequency and severity rise. Ballpark rates (premium expressed as % of the limit of liability) are hovering around 0.75% – 0.90% for UK and European operational businesses but there are outliers where rates fall below this band. Multi-national transactions continue to represent the majority of our engagements and whilst rates are slightly higher at c. 0.90% – 1.20% , significant competition between insurers has kept pricing competitive. As noted in the section below, volume and severity of claim activity in W&I and Contingent Risk has increased materially over the past 12 months. While we do not expect to see any impact to rates during 2024, it is quite possible that the market may seek to move rates back to a level that they had been before the M&A slowdown.
Policy Retentions: Retentions—the amount of loss the insured must incur before accessing the policy—are a key point of differentiation among insurers. For UK and European transactions, retentions can be as low as 0.15% to 0.25% of the enterprise value. 18 months ago a tipping to nil structure at this level was uncommon, however we are now seeing multiple underwriters offer both tipping to nil and dropping retentions, with minimal uplift in cost. Increasingly, insurers are willing to offer nil retentions on single jurisdiction operational businesses in UK and Europe.
Southern Europe: In line with wider European trends, we experienced a roughly 15% decrease in the number of M&A transactions last year. However, the total value of those deals rose, reflecting a concentration on fewer, but larger acquisitions, with a clear focus on high-quality, strategic consolidations.
Major sectors such as financial services and technology continued to drive M&A activity, largely fuelled by ongoing digital transformation and the demand for innovation. The tech industry, in particular, maintained its pivotal role.
Investment in ESG-driven initiatives and renewable energy projects saw significant growth, as sustainability remains a core objective for many Southern Europe firms, drawing interest from investors aiming to align with environmental and regulatory standards. The real estate sector in Southern Europe is moving toward fewer but larger deals, focusing on high-quality assets and strategic consolidation. Demand for logistics and industrial spaces grew, while the office sector revealed a split between strong performance in prime locations and rising vacancies in peripheral areas.
Pricing and retention levels remained consistent, holding at their lowest points.
Middle East: M&A activity in the Middle East has been variable, with a noticeable increase in mid-market transactions which has consequently fuelled additional insurance capacity to move into the region. In particular, more M&A activity has been visible in Saudi Arabia and, as a result, more insurers have realigned their underwriting guidelines to cater for such transactions. Whilst insurers still continue to compete on terms, such as the size of retentions, premium rates remain around 1% of the policy limit. Insurers are beginning to be more creative on coverage terms where, for example, what were typical standard exclusions, such as end of service benefits, are now being considered as an underwriting areas of focus. This in turn provides more fulsome coverage for the insured party.