{"id":9178,"date":"2024-07-03T00:00:54","date_gmt":"2024-07-03T07:00:54","guid":{"rendered":"https:\/\/euclidtransactional.com\/euclidtransactional\/?p=9178"},"modified":"2024-07-29T09:30:22","modified_gmt":"2024-07-29T16:30:22","slug":"insurance-business-magazine-transactional-liability-insurance-an-ma-mainstay","status":"publish","type":"post","link":"https:\/\/euclidtransactional.com\/euclidtransactional\/insurance-business-magazine-transactional-liability-insurance-an-ma-mainstay\/","title":{"rendered":"Insurance Business Magazine: Transactional liability insurance \u2013 an M&A mainstay"},"content":{"rendered":"

The following is an interview from Insurance Business Magazine<\/a> with Tim Grosso, managing director at Euclid Transactional.\u00a0<\/em><\/p>\n

Transactional liability insurance \u2013 an M&A mainstay<\/h2>\n

Coverage has become a mainstay in M&A transactions in recent years<\/em><\/p>\n

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By Chris Davis – July 3, 2024<\/p>\n

Tim Grosso, managing director at Euclid Transactional, recently chatted with Insurance Business to provide a detailed overview of transactional insurance, particularly focusing on representations and warranties. He delved into the trends and evolving landscape of this niche area, reflecting on its journey and growth.<\/p>\n<\/div>\n<\/div>\n

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\u201cI became interested very quickly in transactional liability insurance, and particularly the subset of rep and warranty insurance. That\u2019s what we call it here in North America.\u00a0 Over in Europe, it’s been around for a bit longer, and they call it warranty and indemnity insurance. But, you know, similar concept,\u201d Grosso said, recalling his introduction to the field during an internship at Dechert LLP in 2014. At that time, the concept was still relatively new, especially in the middle-market private equity M&A space, where it first gained traction in the US.<\/p>\n<\/div>\n<\/div>\n

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Grosso said the traditional method of handling M&A transactions involved setting aside a significant portion of the purchase price in an escrow account to cover potential breaches of representations made by the seller.<\/p>\n<\/div>\n<\/div>\n

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\u201cThat\u2019s really an inefficient use of capital because that money is just sitting there,\u201d he said.<\/p>\n

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This method also created uncertainty for sellers, who often were unaware of any inaccuracies in their representations. The introduction of rep and warranty insurance addressed these issues by allowing sellers to take their money and walk away with certainty, while buyers were protected by the insurance policy.<\/p>\n<\/div>\n<\/div>\n

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\u201cWe can go in, we can review those representations,\u201d Grosso said. \u201cGenerally, we\u2019re contracting with the buyer, so we\u2019ll review all their diligence, have a call with them and their client, really understand the background of the transaction.\u201d<\/p>\n<\/div>\n<\/div>\n

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This process allows Euclid Transactional to issue a policy that covers the representations made in the transaction, excluding known issues. He noted that fraud by the seller is one exception where subrogation rights could be pursued, although this is rare.<\/p>\n<\/div>\n<\/div>\n

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An M&A mainstay<\/strong><\/h4>\n

Reflecting on the evolution of the product, Grosso noted that it has become a mainstay in M&A transactions, especially post-2018.<\/p>\n

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Over time, coverage has broadened as underwriters have become more familiar with various businesses and products.\u00a0The COVID-19 pandemic<\/a>\u00a0initially slowed M&A activity, but the market rebounded strongly, leading to one of the\u00a0biggest boom cycles<\/a>\u00a0in 2020 and 2021.<\/p>\n<\/div>\n<\/div>\n

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This boom led to capacity constraints and increased rates in late 2021. However, the subsequent influx of new market entrants in 2022 and 2023 resulted in a decrease in pricing and a broadening of terms. \u201cIt really is a great time to be a buyer in this market right now,\u201d Grosso said.<\/p>\n<\/div>\n<\/div>\n

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From tax accountant to transactional liability<\/strong><\/h4>\n

Grosso\u2019s journey from a tax accountant at Ernst & Young to law school and eventually into the specialized field of transactional insurance provides valuable insights for professionals considering a similar path. \u201cI was always fascinated by law,\u201d he said.<\/p>\n<\/div>\n<\/div>\n

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His experience at Ernst & Young, where he worked closely with lawyers on tax structuring and regulatory matters, reinforced his interest in the legal aspects of transactions. This led him to pursue law school and subsequently focus on M&A, where he found his niche in transactional insurance.<\/p>\n<\/div>\n<\/div>\n

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\u201cOur insurance is mostly focused on ensuring the representations made in an M&A transaction. We also have a rapidly growing tax team, which is another really interesting area of transactional liability insurance,\u201d Grosso said. The tax team focuses on underwriting policies that cover the outcomes of discrete known issues, providing clients with peace of mind regarding their tax positions.<\/p>\n<\/div>\n<\/div>\n

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The impact of technology<\/strong><\/h4>\n

Discussing the impact of technology on transactional insurance, Grosso acknowledged that while the industry is not yet at the stage where policies can be generated solely through technology, significant strides have been made.<\/p>\n<\/div>\n<\/div>\n

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\u201cTechnology is only as useful as the data that goes into it,\u201d he said.<\/p>\n<\/div>\n<\/div>\n

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Euclid Transactional leverages a solid base of data gathered over years of underwriting transactions to inform their decisions. The company\u2019s first claims study, released recently, dives into this data, offering valuable insights.<\/p>\n<\/div>\n<\/div>\n

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The growth of Euclid Transactional\u2019s team, especially during the M&A boom from 2020 to 2021, has also been supported by advancements in remote working tools.<\/p>\n<\/div>\n<\/div>\n

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\u201cWe were able to utilize those as we grew, which helped maintain our consistency,\u201d Grosso said.<\/p>\n<\/div>\n<\/div>\n

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These tools have enabled the company to continue providing a high level of service, even as the team expanded rapidly.<\/p>\n<\/div>\n<\/div>\n

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Looking ahead<\/strong><\/h4>\n

Grosso anticipates interesting times ahead as new market entrants navigate the challenges of claims. \u201cWith the new market entrants, it\u2019s to be seen how everyone\u2019s going to respond to claims,\u201d he said.<\/p>\n<\/div>\n<\/div>\n

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He believes that clients, becoming more familiar with the product and its value, will continue to seek out established markets with proven track records.<\/p>\n<\/div>\n<\/div>\n

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\u201cOur carrier partners have paid over $800 million in claims [during] our over eight-year history. We\u2019ve also had minimal turnover on our team, providing the added benefit of organizational continuity,\u201d Grosso said.<\/p>\n<\/div>\n<\/div>\n

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The following is an interview from Insurance Business Magazine with Tim Grosso, managing director at Euclid Transactional.\u00a0 Transactional liability insurance \u2013 an M&A mainstay Coverage has become a mainstay in M&A transactions in recent years By Chris Davis – July 3, 2024 Tim Grosso, […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[44],"tags":[],"class_list":["post-9178","post","type-post","status-publish","format-standard","hentry","category-news"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t