I think there are a number of things. In some cases, it’s as simple as awareness of insurance solutions that can assist in getting a real estate transaction over the line. In other cases, it’s becoming instrumental in the overall deal. For example, as private equity funds reach maturity, they want to have a clean exit so they can completely wind up all structures and have no contingent liabilities that hurt the internal rate of return (IRR) figures.
The transactional risk insurance market has been growing for a few years now. What are the main drivers behind this growth?
The number of merger and acquisition deals fuelled by the low-interest rate environment has been buoyant across Europe. In real estate, specifically with government bond yields being so low, investment appears to be relatively cheap. However, investors still want to ensure they mitigate as much risk as possible, and using reps and warranty (R&W) insurance can allow for a more open discussion between buyer and seller, with the insurance company becoming the risk participant in the transaction. Rather than the buyer having to seek recourse against the seller, the R&W insurance mirrors the share purchase agreement (SPA), allowing the buyer to claim against the insurance company directly.
How has Brexit affected the TRI market?
At the moment it hasn’t. Our business across Europe is growing and our clients remain active across the whole of Europe. Of course, like all UK-based insurance companies, we are working on contingency plans to allow us to operate post-Brexit but, given the recent UK election, it seems that Brexit might be softer than first expected. In any event, that’s out of all of our hands, so we will simply prepare for the worst and hope for the best in order to provide continuity to our European business.
What is the most popular insurance product for real estate transactions in Europe?
It’s still defective title insurance, typically in relation to an issue uncovered by the lawyers during their due diligence process. For example, a planning problem or missing document can, on the face of it, be a relatively minor issue. However, in a multimillion-Euro deal, lawyers are increasingly insuring against these risks rather than taking a legal view on the likely materialisation of the risk.
Are there any products that will be coming to market soon?
First Title can offer title-to-shares policies in some jurisdictions, and we hope to extend that across the whole of Europe in the coming months. We also hope to enter the R&W market as soon as possible in order to meet increasing client demand.