Claims on M&A Deal Insurance Hit Record High, Insurer Reports
Claims on insurance that protects buyers in mergers and acquisitions reached a record in 2025, according to a claims briefing from Liberty Global Transaction Solutions, which received 176 notifications across all regions, about 26% more than in 2024. The coverage, known as representations and warranties insurance, pays for losses when a seller’s statements about a business, such as the accuracy of its financial records or its compliance with laws, turn out to be untrue.
Liberty GTS said H1 2026 data suggests the trend will continue, albeit at a more modest pace. The insurer attributed the rise partly to increased policy counts driven by higher deal activity, particularly at the lower to mid-end of the market, and partly to a genuine uptick in notification frequency on more recent years of account.
The insurer’s historical data, corroborated by other claims studies in the market, indicates roughly 1 in 5 R&W policies, or 20%, will see a notification over their lifecycle, but it is now projecting that figure could rise to 1 in 4, or 25%, on recent years of account. The increase is most pronounced in EMEA, where notification frequency sits significantly above historic levels from 2023 onward. Globally, policies written in 2025 are running at 12% notification frequency, about 4% higher than prior years at the equivalent point in their lifecycle.
Severity Climbs as Average Payments Rise
Claims severity is increasing alongside frequency, Liberty GTS found. The average payment size for claims notified to the 2019-2022 years of account was around $7 million, except for 2021, which averaged roughly $9 million. By contrast, the average payment size reached $9 million for claims notified to 2023 policies and $13 million for 2024 policies, the insurer said, though it noted the 2024 figure is skewed by one very large payment and is expected to come down as more claims on that year of account are paid and reserved.
Payments of $10 million or more now make up about 75% of total dollars paid, up from about 68% at the end of 2024. The insurer also said it received more notifications involving an alleged loss of $10 million or more in the past 12 months than at any other point in time.
Liberty GTS pointed to several possible drivers, including the growth of “nil seller recourse deals,” in which the seller has no financial liability or obligation for breaches of representations, warranties, or pre-closing tax indemnities, with R&W insurance the buyer’s only recourse. These deals reduce sellers’ incentive to properly negotiate warranties or conduct thorough disclosure.
The insurer also cited a shift in how some policyholders use the R&W product, saying more buyers appear to be actively searching for claims through post-closing or end-of-policy-period reviews, with the motivating factor no longer limited to buyer’s remorse but now sometimes including an effort to reduce the purchase price after closing.
Separately, Liberty GTS said an increasing number of claims take a valuation-based approach to calculating damages rather than quantifying loss by dollar-for-dollar impact, a trend it said raises severity and can make the claims adjustment process less predictable because of competing expert evidence, counterfactual assumptions and subjective valuation methodologies.
Retentions Have Fallen as Coverage Expanded
Retentions have dropped sharply since 2023, when deal activity collapsed, Liberty GTS said. Retentions of 1.5% of enterprise value were once common but have largely disappeared, with most now below 0.5% of enterprise value and tipping-to-nil retentions more frequent in some regions. The insurer said about 1 in 5 primary-layer notifications historically result in a paid or reserved claim, a figure it calls the conversion rate, but that this may rise as retentions fall further.
Excess policies perform better, with a conversion rate of notifications to claims currently below 5% on nearly all years of account aside from 2019, though Liberty GTS noted that excess payments tend to be much larger when they occur, averaging around $19.5 million compared with roughly $7 million for primary-layer R&W payments.
The briefing also highlighted that extending coverage to a policyholder’s third year of ownership has proved to be a significant enhancement: 15% of notifications from policies written in 2019-2022 were made in Year 3, but those notifications accounted for 33% of dollars paid and reserved, compared with 43% for Year 1 and 22% for Year 2.
Liberty GTS said accounting and financial issues remain the leading driver of R&W losses, responsible for 52% of dollars paid and reserved, followed by material contract and customer issues at 14%, compliance with laws at 12%, condition of asset issues at 12% and intellectual property issues at 5%.
The insurer also flagged a rise in large tax claims tied to Mexican tax issues, noting five notifications involving Mexican tax issues with a quantum exceeding the retention by more than $10 million, two of which implicated more than one layer in the tower and involved amounts in excess of $100 million. Liberty GTS said it now regards Mexican tax issues as effectively uninsurable, citing increasingly aggressive positions taken by Mexico’s Tax Administration Service, its use of A.I. to increase the number of assessments it can make, and recent changes to rules around advance tax payments in Mexico.
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