How Transactional Risk Insurance is transforming M&A in Africa

Tony van Niekerk, Editor at COVER in conversation with Luke Sutton, Head of Transactional Risk Insurance at Marsh 

As the African mergers and acquisitions (M&A) landscape matures, dealmakers are increasingly turning to a powerful, though often underutilised, tool: transactional risk insurance (TRI).  

This innovative insurance solution, once reserved for large private equity transactions in developed markets, is rapidly gaining traction across the continent, thanks to increased deal sophistication, insurer appetite, and better education around the product. 

I spoke with Luke Sutton, Head of Transactional Risk Insurance at Marsh, to understand the growing significance of TRI and how it’s helping unlock value in African transactions. 

At its core, transactional risk insurance refers to a suite of products designed to transfer specific legal and contractual liabilities that emerge during a transaction, most commonly, during the sale of a business or significant asset. These risks may include inaccuracies in a company’s accounts, unknown tax liabilities, pending litigation, or regulatory non-compliance. TRI solutions allow buyers and sellers to transfer these risks to insurers, rather than retaining them on their own balance sheets. 

The most widely used product under this umbrella is warranty and indemnity insurance (also called representations and warranties insurance in the US). This policy covers breaches of warranties given by the seller to the buyer about the state of the business. Other key offerings include tax liability insurance, which covers known but uncertain tax exposures, and contingent risk insurance, which is used to cover specific identified issues such as unresolved legal disputes, cyber vulnerabilities, or other legacy matters uncovered during due diligence. 

Historically, TRI was largely the preserve of big-ticket private equity deals involving extensive legal and financial due diligence. However, that is rapidly changing. In Africa, as local and cross-border investment becomes more structured, the use of TRI has expanded significantly. Where five years ago insurers would only consider a handful of African risks on an ad hoc basis, today, there is robust competition among underwriters for African business, driving lower premiums and broader coverage terms. 

What’s behind this shift? In part, it’s a reflection of how M&A is conducted globally. As investors from Europe, the US, and Asia look to Africa, they bring with them transaction structures, governance expectations, and documentation standards that align with TRI requirements. At the same time, African advisors and sellers are increasingly proactive in preparing for sale, engaging early with brokers like Marsh to ensure deal structures and warranties are insurable. 

Early engagement is critical. Marsh recommends involving a broker well before the sale or purchase agreement is finalised. For sellers, this enables a so-called “clean exit”, a transaction where future liability is minimised or eliminated through insurance. This makes the deal more attractive to buyers and can increase transaction speed and certainty. On the buy side, TRI provides peace of mind, helping investors protect themselves against future claims, especially when sellers are exiting completely or are based in jurisdictions with uncertain enforceability. 

Importantly, TRI is not just about placing insurance, it plays a valuable advisory role. Marsh’s transactional risk specialists work with clients to improve deal structures, recommend warranty wordings, and evaluate areas of potential risk. Where necessary, they bring in teams like Mercer (for employee and pension-related issues) or analyse the business’s existing insurance portfolio to identify gaps that might impact the TRI coverage. 

Globally, TRI is also evolving. Although 2023 saw a modest rebound in overall M&A activity, reaching around $3.4 trillion in deal value, the use of TRI grew dramatically. Marsh recorded its second-best year ever in terms of insurance limits placed, indicating that a larger share of deals now include insurance. This growth was particularly marked in corporate transactions, not just private equity-led deals. As boards and risk officers become more familiar with the claims history and performance of these policies, they are increasingly viewing them as essential protection, not a luxury. 

Africa is very much part of this global trend. While much of the continent’s M&A remains domestic, sectors like energy and natural resources, technology, and consumer goods are seeing increasing levels of activity. These transactions are becoming more sophisticated, and insurance is playing a critical role in facilitating investment, especially in riskier or less transparent environments. 

The Marsh Transactional Risk Report provides a unique perspective on these trends, drawing insights not only from insurance placement data, but also from deal structuring, underwriting decisions, and claims. A companion report, focused on claims, will be released later this year. It is expected to show a rise in both the frequency and size of claims, particularly around accounting and tax-related issues. Since 2019, Marsh has seen over $1.5 billion in claims paid under transactional risk policies it has placed. 

One of the most encouraging developments for African dealmakers is that TRI is now more accessible, affordable, and relevant than ever. Deals previously considered too small or too complex for insurance, like distressed sales or smaller private transactions, are increasingly being underwritten. Insurers are also more flexible, often willing to work around gaps in due diligence or legacy issues if they can understand and price the risk. 

Crucially, testing the market costs nothing. Engaging a broker like Marsh to assess insurance options for a deal incurs no upfront cost, and often yields valuable insights, even if the deal proceeds without insurance. 

As Sutton puts it, the African M&A environment has come a long way. The combination of stronger advisory ecosystems, more structured transactions, and growing insurer appetite means that transactional risk insurance is no longer a foreign concept, it’s a strategic advantage. 

For African dealmakers, whether seeking growth, exit, or investment, the time is right to explore the benefits of de-risking deals through TRI.