14pc M&A policies resulted in claim: AIG

Nearly 14 percent of M&A policies written globally by American International Group, Inc. resulted in a claim, according to a study of the global insurer’s representation and warranties (R&W) insurance claims data between 2011 and 2014. The study suggests a significant number of M&A transactions worldwide may see issues arise from breaches of deal terms discovered after closing.

Financial statement misrepresentations were the leading cause of these M&A insurance claims, accounting for 28 percent of all claims during the period. Tax errors or misrepresentations were the second most frequent claim type, accounting for 13 percent of filed claims, followed by 11 percent of claims filed due to discrepancies that emerge from a company’s contracts.

“A deal can come back to haunt,” said Mary Duffy, global head of M&A Insurance. “From AIG’s perspective, transactions pose risks to a significant number of companies, despite the best efforts during due diligence. Even the most sophisticated and largest companies can and do miss critical issues during the deal process.” 

The study found that companies in deals worth USD1 billion or more were the most likely to claim damages following the close of a transaction, with 19 percent of policies covering this deal size seeing a claim. Companies involved in transactions under USD100 million were the next likeliest with 15 percent of policies covering this deal size seeing a claim.