Driven by M&A activity, warranties and indemnities insurance for deals in Africa has grown significantly during the past decade, according to a report published by the international law firm, White & Case.
In the report titled “Warranties and indemnities insurance take centre stage in M&A transactions in Africa”, the authors — Mr Ken Barry, a partner, and Mr Oji Adoh, an associate, in the London office of White & Case, along with Mr Rowley Higgs (partner, HWF) and Ms Munal Mehta (partner, HWF) — say that the appetite for W&I is likely to continue to grow.
This growth has been driven by, among other factors, private equity investments in M&A insurance markets driving more aggressive business development and increased competition in European W&I insurance markets, which have depressed the premium rates insurers can charge in those markets.
The slowdown in M&A activity in more established markets has also prompted insurers to seek new opportunities in Africa.
Fees are becoming more competitive and coverage is more widely available, making W&I insurance attractive for a broader range of African transactions and more jurisdictions offering insurance coverage.
Sectors
Interest in W&I insurance is growing in a variety of business sectors in Africa, including:
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FinTech: Most of Africa lacks conventional banks. This has led to the development of innovative payment solutions businesses such as MPesa in East Africa and MNT in Egypt
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Agriculture: A significant portion of the investment in this sector results from the food security risks in the Middle East that were highlighted by the COVID-19 pandemic
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Pharmaceuticals: Underdeveloped regulation in Africa has meant that transactions in this sector have typically proved difficult to cover on the continent. Nonetheless, investor interest in pharmaceuticals has been increasing substantially in recent years
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Manufacturing and industrials: Although these sectors continue to lag behind other global markets, they are strengthening in Africa due, in part to, the African Continental Free Trade Agreement (AfCFTA), increased domestic demand, and new policies encouraging the use of minerals and other raw materials to benefit Africa
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Clean energy solutions: W&I insurance has gained steady traction in transactions involving assets in this sector
However, riskier sectors and sociopolitical or geo-economic concerns can still put certain transactions beyond the reach of W&I insurance. For example, insurers declined to insure a transaction involving a conglomerate of regulated utilities operating in several West African jurisdictions. The parties could not agree on the terms.
Regional disparity
Even where W&I insurance is viable, insurer appetite varies considerably throughout the continent's markets. For example, the South African market is well-established and therefore, attracts a broader selection of insurers and thus, more favourable terms. In North Africa, awareness of W&I insurance is increasing, with transactions in Morocco, Tunisia, and Egypt regularly covered by the W&I market. And interest is also growing in Algeria. Generally, assets based in the larger economies in East Africa are coverable and attract cheaper rates than those in North Africa.
W&I insurance has recently been applied to deals involving targets in Kenya, Uganda, Rwanda, Tanzania, Ethiopia, and Mozambique and to pan-African deals with targets having operations in multiple jurisdictions. Essentially, few African jurisdictions remain beyond the scope of insurers. And the more benign the sector is perceived to be (for example, renewable energy), the more countries in which deals will be insurable.
To read the original report, please click here.