Korea M&A Insurance
2025 Review & Outlook

Korea M&A Insurance  | 2025 Review & Outlook

As we are at the midpoint of 2025, it is an opportune time to take a look at South Korea’s mergers and acquisitions (M&A) landscape and examine how M&A insurance is facilitating transactions.

Over the past 12 months, Korea’s M&A activity has been quite a rollercoaster ride. 2024 began with subdued M&A activity but climbed steadily throughout the year until plunging when martial law was declared and political chaos ensued in early 2025. However, following two interest rate cuts and a decisive political election that reduced uncertainty, Korea’s M&A environment regained its footing with transaction volume rising again, and M&A professionals being cautiously optimistic as the market positives now outweigh the negatives.  

South Korea: Macroeconomic Challenges

Korea has experienced sluggish economic growth for several quarters but there is renewed optimism as another one or two interest rate cuts are anticipated this year, capital is abundant from traditional banks and private credit sources, and the post-election stock market rebound is viewed by many as sustainable. Imperative for economic recovery, Korea must boost domestic consumption and expand export growth which will be difficult considering geopolitical uncertainties and unresolved tariff issues. These factors have increased the complexity of target company valuations and contributed to persistent valuation gaps between sellers (who recall the good times) and buyers (who are reluctant to overpay).

Strategic Corporate Realignment

Korea’s large conglomerates (chaebols) are actively restructuring, leading to carveouts, divestitures, and renewed interest in outbound transactions to pursue growth, AI readiness, digital transformation, decarbonization, and government favored sectors. Korea’s Value-up Program and corporate law reform aims to address the so-called “Korea Discount” by encouraging listed companies to enhance corporate governance, transparency, and shareholder accountability. This initiative is expected to further chaebol restructuring and M&A activity, particularly to counter emboldened activist investors. Additionally, generational transitions in family-controlled businesses continue to spur M&A activity as succession planning and legacy issues prompt families to seek exits or new partners.

Private Equity Activity

Korea private equity (PE) firms have raised significant capital over the previous 24 months and are now under pressure to deploy these funds, intensifying competition for quality assets and increasing interest in secondary transactions. At the same time, PE firms face pressure to exit mature assets and deliver liquidity to LPs, a process complicated by underperforming assets suffering from macroeconomic and geopolitical headwinds.

While South Korea’s M&A market has faced turbulence—from political upheaval to global economic uncertainty—it is showing signs of recovery. The positives, including monetary easing, sectoral opportunities, and strong PE interest, are beginning to outweigh the negatives. However, dealmakers must navigate persistent challenges: valuation gaps, weak domestic fundamentals, and the need for greater AI and governance readiness. Cautious optimism prevails, with expectations that ongoing reforms and strategic pivots will foster a more resilient and dynamic M&A market in the second half of 2025 and beyond.

Considering Korea’s complex M&A environment, quality due diligence and well-tailored transaction insurance solutions are critical for successful acquisitions, exits, fund-raising, and distributions.

De-risking and Deal Innovation

With increased M&A volume, PE exit preparation, and LP distribution planning, ARIA has seen a notable rise in transaction risk mitigation inquiries for a wide range of issues. M&A insurance de-risks transactions by transferring specific risks to an insurer, covering both known and unknown liabilities, and thereby increasing transaction certainty while protecting buyers, sellers, and LPs.

Warranty and Indemnity Insurance (W&I) / Representation and Warranty Insurance (RWI)

1. The growing number of W&I inquiries and policies secured for Korea domestic and outbound transactions over the past few years demonstrates the increasing value and acceptance of W&I in Korea.

2. In 2025, W&I premium rates have declined in Korea and abroad due to lower deal volumes, which have heightened competition among existing insurers and new entrants. Insurer budget pressures are also resulting in more favorable coverage language and innovative de-risking structures. Buyer friendly premium rates and policy wordings are likely to persist, and ARIA will closely monitor these trends as 2025 progresses.

3. GP-led secondaries have expanded with the rise of single- and multi-asset continuation funds, and interest in mechanisms to mitigate related transaction risks has grown accordingly. While insurers have historically been cautious about covering secondary transactions, they are now adapting to the unique risk profiles of these deals and are becoming more comfortable with them. For example, insurers previously would not cover excluded obligations but have now started offering coverage. Additionally, coverage is being offered for GP/LP clawback risks, breach of subscription agreements, and tax liabilities from asset sales. Knowledge qualifiers remain a challenge in secondary transactions, but we are seeing underwriter flexibility with the issue. For the best coverage outcome, the GP needs to be active in the underwriting process and be available with their compliance teams to discuss fraud and timing risks with underwriters.

4. Recent US tariff changes and retaliatory measures have contributed to global uncertainty and a cautious dealmaking environment. W&I underwriters have taken note and will scrutinize how buyers have assessed tariff impacts on a target’s financials and whether those risks are reflected in valuations. Underwriters will also inquire about post-closing plans for managing trade environment changes, including supply chain flexibility, regulatory compliance, qualifying goods under trade agreements, and customer response to cost shifts. Any tariff-related coverage limitations should be carefully negotiated away.

5. Distressed and insolvency deal inquiries remain steady, but W&I underwriters continue to consider these deals very selectively. Insurance can be secured but a well-crafted narrative and deal structure are essential before approaching insurers. W&I is particularly valuable where a buyer has credit risk concerns about a seller’s ability to stand behind its indemnity obligations or where a seller is unwilling or unable to provide indemnification.

6. Synthetic W&I insurance is being used where sellers or managers are unwilling or unable to provide warranties. While this solution was initially used on distressed M&A deals, it is now being used on mainstream M&A deals. Fully synthetic coverage is when insurers provide a full suite of warranties when none are included in the SPA. Partially synthetic W&I is used to supplement limited warranties in the SPA. A synthetic tax indemnity in a policy addresses unknown pre-completion tax liabilities.

7. W&I interest is growing for minority investments and JVs, with coverage structured to protect investors for their pro-rata share of a company level loss.

8. W&I in Korea has recently been used to address the unique risks and challenges that are inherent in family business transitions and franchisor transactions.

9. Take-privates are possible, but W&I insurer appetite depends on the deal structure and the involvement of controlling shareholders and management who have requisite knowledge.

10. Demand for W&I on cross-border deals is mixed. Korean investors have become more risk averse on going abroad due to economic, geopolitical, regulatory, and FX concerns but minority inbound investments have been on the rise. For outbound deals, distressed asset opportunities, such as 363 sales in the US, are a key motivator and W&I can facilitate these transactions.

11. As deals are taking more time to complete and the interim period between signing and closing has widened, discussions on interim breach coverage have grown. Typically, coverage for interim breaches (breaches of the representations and warranties that both occur and are discovered during the interim period) are excluded under W&I policies, however, insurers are more open to offering interim coverage subject to the length of the interim period and deal specifics.

12. As the number of W&I policies issued for Korean transactions grows, so does claim activity. W&I claims are increasing in Korea and across the region, particularly as economic pressures affect portfolio companies and real estate investments which were covered by long-term multi-year W&I policies. In fact, ARIA has received inquiries from insureds to review aging W&I policies placed by various brokers to see if certain representations involving struggling portfolio  companies could now trigger coverage. Currently, various insurers report that roughly 20% of their W&I policies globally receive a claim notification and that claim amounts are growing, especially for complex transactions.

With dealmaking sluggish, PE firms are reviewing their portfolios and updating value creation plans. As part of this process, there have been increased inquiries for insurance solutions for known tax, contingent liability, and regulatory issues.

Tax Liability Insurance

1. Tax Liability Insurance (TLI) coverage enables insureds to reduce or eliminate known tax risks or uncertain tax positions arising from the tax treatment of a transactions, investments, or other issues that may be challenged by the NTS or foreign tax authorities. TLI is gaining popularity among companies, PE firms, trusts, and high-net worth individuals to mitigate tax risks.

2. Interest in tax insurance is steadily growing as tax authorities become more aggressive to address budget shortfalls with M&A transactions (past and present) under heightened scrutiny.

3. TLI premiums rates are declining and coverage terms are improving due to new insurers entering the market, competition, and underwriter budget pressures. Insurers will even consider coverage for tax risks that are in active litigation.

4. We continue to see new and creative applications of TLI to address a range of tax concerns including those relating to transfer pricing, valuation, residency, partnership audit risks, and employee retention credits. In Korea, capital gains tax applicability and the identification of beneficial owners is a common concern that TLI can address. Also, GP-led secondaries can create unique tax issues that TLI can be structured to ringfence. ARIA has successfully advised on structuring several complex tax policies in recent years and it is an opportune time to consider TLI solutions.

5. For cross-border deals, tax risks are a growing concern as tax authorities are putting corporations’ tax arrangements under greater scrutiny, especially those with multi-country operations.

6. On distressed deals, tax insurance can protect the debtor and/or buyer from unexpected tax liabilities related to debt restructurings, cancellation of debt income, and the use of a target company’s NOLs.

Contingent Litigation Risk Insurance

1. Ongoing litigation and regulatory issues can create significant uncertainty and financial exposure for litigants, lawyers, and M&A buyers and sellers. Lawsuits can be protracted, outcomes unpredictable, damages difficult to estimate, and judges, juries, arbitrators, and regulators can settle cases in unexpected ways. Contingent and liability risk insurance is designed to mitigate these risks by transferring known legal and regulatory liabilities to insurers.

2. Acquirers can ringfence existing litigation issues at target companies to improve valuation certainty and to remove obstacles to deal closure. Sellers can similarly address known liability and regulatory matters at their own company/entity to preserve value and make it a more attractive acquisition target.

3. Judgement Preservation Insurance can be used to lock in the value of a favorable judgement issued by a court or arbitration panel where the judgement could be reversed or reduced on appeal or remand. Coverage continues until a final, non-appealable judgement is entered in the litigation.

4. Adverse judgement insurance caps a defendant’s liability for paying damages above those assessed in a judgement.

5. Coverage can be structured to address a standalone single matter or a “portfolio” of several distinct issues that are in litigation.

The M&A transaction insurance market is evolving rapidly, with underwriters eager to consider new applications for warranty & indemnity, tax liability, and contingent litigation risk insurance. Contact ARIA to discuss any unique transaction issues, we are committed to creating tailored risk mitigation solutions.

Eric Hoffman
Asia Risk & Insurance Advisors
M: +82-10-2267-2788
E: eric.hoffman@asiariskadvisors.com

To our clients:

Thank you for your unwavering support as ARIA celebrates its ninth anniversary. Since our founding, ARIA has advised on over USD 50 billion in aggregate deal value reinforcing our position as the leading transaction insurance advisor for Korea on-shore and off-shore transactions. We are deeply grateful to our clients, your trust has made our success possible.