Mergers and Acquisitions Insurance Korea
M&A Insurance — also known as transactional risk insurance – refers to customized insurance solutions that help buyers and sellers mitigate M&A transaction risk and facilitate the closing of deals. During due diligence, risks can be discovered that might impede a deal from moving forward or that can cause buyers and sellers to assume these unwanted risks. Properly tailored M&A Insurance can ring-fence such known risks, transfer them to an insurer, allow the transaction to close, and help both parties achieve their deal objectives. Following due diligence, mergers and acquisitions insurance can also be structured to cost-effectively manage residual unknown risks, versus relying on more traditional methods, such as escrows, purchase price adjustments, holdbacks, or guarantees.
Innovative M&A Insurance Solutions
Advising sellers and buyers in Korea since 1998, ARIA provides in-depth analysis on insurable risk issues that impact a deal’s financial modeling, valuation, and post-close risk management practices. ARIA ensures that transaction related risk is mitigated cost effectively, transparently, on time, and with the highest degree of confidentiality for mergers, acquisitions, divestitures, and exits.
- Warranty & Indemnity Insurance / Representation & Warranty Insurance
- Tax Liability Insurance
- Contingent Liability Insurance / Litigation Buyout Insurance
- Environmental Liability Insurance
- IPO / Prospectus Liability Insurance
M&A Insurance Korea
Getting the Deal Done
SOUTH KOREA M&A INSURANCE
M&A Insurance was first introduced to Korea’s mergers and acquisitions community in October 2007. Following widespread education efforts with private equity firms, strategic investors, and their related advisors, the first M&A Insurance policies for Korean transactions were secured in 2013. Three policies were written that year for strategic buyers who purchased assets abroad and, being unfamiliar with the foreign acquisition jurisdictions, utilized M&A Insurance for the comfort they needed to execute and close those transactions.
The year 2014 saw the first M&A Insurance policy issued for a domestic Korean transaction involving a local seller, buyer, and target. Two additional “Korea centric” policies were placed later that year; all three were secured to provide a clean exit for the seller. While 2015 was a busy year for M&A transactions in Korea, no M&A Insurance policies materialized.
Only six policies had been structured for Korean transactions since M&A Insurance was introduced eight years earlier while, over the same period, thousands of policies were being underwritten and placed in the US, Europe, and Australia. Korea’s slow acceptance of M&A Insurance was largely due to too few professionals willing to pioneer this new risk management approach. However, M&A Insurance gained much attention in 2016 when five policies were utilized, including South Korea’s first mega-policy that provided limits in excess of US$200 million. In 2017, reluctant “early adopters” became “fast followers” as seven policies were secured, while a further ten were underwritten (but not placed), and the number of inquiries skyrocketed.
M&A insurance Korea finally took off in 2018 with thirteen policies concluded. M&A professionals were now well aware of this type of insurance and its benefits, repeat buyers emerged, and M&A Insurance was being structured into deals early in the sale process via an innovative new approach called a “sell-buy flip”. Since that time, creative M&A Insurance solutions — including warranty & indemnity insurance and tax insurance have become an integral part of Korean M&A transactions, on and offshore.
KOREA’S M&A INSURANCE MARKET
AIG was the first underwriter of mergers and acquisitions insurance to have a policy approved by regulators in Korea. Subsequently, Hyundai Marine & Fire, Chubb, Allianz, and DB (Dongbu) had policies filed with South Korea’s insurance regulators and entered the market. Each insurer manages such products out of their Seoul offices, but they rely heavily on underwriting and claim expertise based abroad. Due to each M&A Insurance policy being unique and requiring bespoke wording, it is important for insureds to seek advice from insurance brokers and/or advisors who have M&A legal backgrounds along with broad transaction insurance experience in tailoring policy language and structuring complex reinsurance programs.