Devonshire Underwriting

Spotlight On: Contingent Risks

Spotlight On: Contingent Risks

The last few years have seen a shift in legal contingent risk insurance. There’s an improved quality and quantity of products, and Devonshire is well placed to be at the forefront of the market, writes Charles Turnham, Partner, Devonshire Underwriting

What trends are you currently seeing in contingent risk insurance and how is capacity appetite developing?

It’s an exciting time for contingent risk insurance, which is the youngest of our products. The last two to three years has seen Underwriters and Brokers investing in talented specialists with litigation backgrounds that have come from other parts of industry, who have really developed and evolved contingent solutions to align with modern challenges and requirements. There’s been a lot more creative and granular thinking around the product. So, to my mind, expert resourcing has been a key factor in the improvements made as, in the past, products would have been developed with something of a one size fits all approach, and lacked a bespoke and progressive lens.  

Over the past decade, the concept of contingent risk insurance has evolved from a narrow focus on litigation-based risks (sometimes referred to as “Judgment Preservation Insurance”) to encompass a broader spectrum of risks, including M&A-driven opportunities, insolvency scenarios, and capital protection structures.

How do you see your own contingent insurance product developing to meet client demand?

Devonshire is, I believe, very well placed to be responsive and innovative with our approach to this complex class. James Dodd (Founder, Devonshire Underwriting) and I are very experienced in this area, having seen the market evolve over many years, and we are positioning Devonshire at the forefront, pushing the horizon forward for this product line. Our approach is to assess each situation on merit, rather than labelling it in predefined categories. There are, of course, certain predetermined considerations to make (for example, we will need to be satisfied as to the legal risk analysis, the applicable governing law and forum, and the commercial alignment between Insured and Insurers), but we want to be flexible in our thinking. By doing so, we can tailor our solutions to the unique needs of each client, ensuring that we address specific risks with precision and creativity. This flexibility allows us to stay ahead of emerging trends and continuously refine our strategies to meet the evolving demands of the market and the nature of contingent risk. We believe that the product has particular potential to be more widely applied to address issues arising in M&A and restructuring-driven scenarios.

What are the biggest challenges in the European contingent market, and how are insurers responding to the evolving risk landscape?

Often there can be a process challenge here. The market has faced a scenario where the products are complex and assessing insurability hasn’t been straightforward – it often requires a significant time commitment upfront from all parties to appropriately assess and price risks. We’re well placed to meet that head on. Devonshire has an agile structure and we’ll pivot to the opportunity if we see it, and can harness our collective experience and insight to assess each risk on an independent basis.  

We’ve seen recent adverse litigation developments in the US on insured deals that will provide an ongoing challenge to underwriters and brokers in the space, but our view remains that with careful risk selection and strong underwriting discipline, there’s very significant potential for these products. By maintaining rigorous underwriting standards and leveraging our deep industry knowledge, we can effectively navigate these challenges and capitalise on emerging opportunities. Our disciplined approach ensures that we thoroughly assess risks, make informed risk-selection decisions, and continue to provide valuable and highly relevant solutions to our clients.

What is the state of play with M&A in the market at present?

The wider M&A market is choppy at the moment and, with general elections in various countries around the world taking place soon, there’s cautiousness, though there are some signs of tentative increase in pace and we’re slowly seeing some bigger deals emerging. 

As the summer progresses we’ll have a clearer view on how the remainder of the year will play out. 

Contingent insurance products are a natural hedge for M&A as they can de-risk M&A processes and release trapped assets. In some ways they’re M&A agnostic. As political and economic uncertainties begin to settle, the role of contingent insurance in providing stability and confidence in M&A transactions will become even more crucial. We anticipate that with a clearer political landscape, there will be renewed vigour in deal-making activities, further highlighting the importance of robust contingent solutions in mitigating risks and ensuring smooth transactions.

What would be your call to action to the market?

We see this product as being at an exciting stage. Similar to Tax, it provides protection against a known legal risk. We’ve seen impressive growth over the last 10 years, and we think the product can be used in a variety of different ways. My call to action is simple: to sustain profitable growth in this evolving and complex class, it is essential to maintain strong underwriting discipline and adopt a bespoke approach to risks. This market demands experienced underwriting partners who can offer tailored solutions that can address unique challenges and opportunities effectively. By rigorously assessing each situation and customising our strategies, we can continue to drive innovation and deliver exceptional value to our clients.