Insurance Marketplace Realities 2025 – Transactional risk

Rate predictions: Transactional risk

	Trend	Range
Representations and warranties insurance		+10% to +15%
Tax insurance		+10% to +15%

Representations and warranties insurance (RWI)

• The continued entry of new MGA/MGU capacity to the RWI market, even in a time of low deal activity, has contributed to (1) the continued depression of rates and retentions and (2) persistently broad coverage, despite those low rates and retentions. As a result, competitive market dynamics continued throughout 2024.
• Many RWI insurers added headcount in response to the extremely active 2021 M&A market and are thus poised to handle an increase in deal flow as the market recovers in Q4 2024 and into 2025.
• The extremely high rates of 2021, which were in part driven by chronic insurer understaffing in the face of historic deal volume, are unlikely to fully return. However, an upswing in transaction volume will drive pricing up and may also lead to more restrained coverage in the form of additional deal-specific exclusions and more restrictive positions with respect to underlying insurance requirements.
• Taking advantage of the soft RWI market, WTW has worked to expand insurers’ appetites for deals in industries where underwriters previously had extremely limited appetites, including upstream oil and gas, healthcare, minority/JV investments, small (sub-$50M EV) deals, and secondaries transactions. There is now a proven track record of favorable underwriting outcomes and manageable claim activity in these sectors, which gives WTW confidence that RWI will continue to be available on a broader array of deals than ever before. We also believe that coverage enhancements such as expanded policy periods and nil retentions for certain fundamental representations will remain available to WTW’s clients, as they have become a standard part of our upfront negotiations with underwriters.

Tax insurance

• Many tax insurers upped their headcount in response to the passage of the IRA in 2022 and the related explosion in the tax insurance market, with the first half of 2024 reportedly exceeding expectations and setting the stage for a record year.
• Uncertainties created by the November 2024 presidential election, with a Trump victory likely to lead to the repeal of key provisions of the Biden administration’s Inflation Reduction Act to finance and extend expiring provisions of the Trump administration’s Tax Cut and Jobs Act, will likely add to the flurry of tax insurance activities.
• Many insurers, with a steady stream of tax insurance submissions, are more selective with their appetites and have begun to raise pricing, narrow coverage, or both.
• WTW uses its tax expertise to obtain the broadest coverage available for any single risk, including narrowing or eliminating any deal-specific exclusions.
• Sections 45Y and 48E (together, the “tech neutral tax credits”), which were enacted as part of the IRA, will replace credits currently under Sections 45 (production tax credit) and 48 (the investment tax credit) beginning in 2025.
• Tax policies covering risks related to whether construction has started on a given project during 2024 are also likely to proliferate in Q4 2024 because certain energy projects that lack nonzero greenhouse gas emission technologies may no longer be eligible for tax credits beginning in 2025.

Contingent risk insurance

• Large claims have begun to materialize, particularly in the single case judgment preservation insurance (JPI) arena. In response, some insurers have stopped writing contingent risk insurance altogether; others have limited the types of policies they will support (e.g., they will not provide JPI); and still others have curtailed their limits across all forms of contingent risk insurance. The result is increased premium pricing and, in general, smaller policies compared to prior years. Despite these market headwinds, WTW successfully placed multiple JPI policies in 2024.
• New insurers have entered the contingent risk marketplace in 2024; they are focused largely or exclusively on multi case portfolio contingent risk policies, as opposed to single case policies. Because portfolio contingent risk policies are usually used to attract capital at a competitive cost (as opposed to risk transfer), this has led to a surge in demand from investors.
• Law firms — particularly litigation firms that handle cases on contingency — are also driving demand for portfolio contingent risk policies. Litigators are purchasing portfolio policies to set a floor on their recovery across multiple cases, then using these policies as collateral for funding that the firm can use for case costs or operational expenses. This trend should continue to develop in 2025 as awareness of contingent risk insurance grows.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Contacts

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Simone Bonnet

Head of Transactional Insurance Solutions

email Email phone +1 212 309 0923

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Andrew Hirsch

Co-Head of Transactional Insurance

email Email

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Shirley Chin

Head of Tax Insurance

email Email

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Jason Bertoldi

Head of Contingent Risk Solutions, Transactional Insurance Group

email Email phone +1 347 409 2307

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