2026 Transactional Liability mid-year state of the market

The transactional liability insurance market continues to evolve in response to shifting deal dynamics, increased submission volume, and a maturing claims environment across product lines. M&A activity remains a primary driver for representations and warranties insurance (“RWI”) and tax insurance, but the broader transactional liability space now encompasses a much wider range of risk transfer solutions, from capital protection related to litigation assets, to coverage for known issues in tax positions taken in the ordinary course of business and environmental risks generally considered to be outside of what might be insured.

Overview

Across all of transactional liability, the common theme is that the market’s evolution has led to deeper expertise that allows underwriters to tackle complex risks, pricing discipline that can sustain the market in the long run, and open-mindedness to creative coverage positions and terms. In this market, The Baldwin Group’s Transactional Liability team brings the deep bench of legal, finance, accounting, and related experience needed to drive a differentiated process and superior results.

Representations and warranties insurance

Current market conditions

The steady rate increases observed over the past 18 to 24 months appear to have stabilized, with rates-on-line (premium divided by limit) generally holding between 3.25% and 3.50% for the first 10% of enterprise value (EV) on most transactions (with some exceptions for deal size and certain industries). This is a welcome development for underwriters that have faced increasing claims activity and rising loss ratios as the product has matured over the past 5 to 10 years.

That said, not all underwriters have weathered the adjustment equally. New entrants — typically managing general underwriters (“MGUs”) with authority to underwrite and bind coverage on behalf of large insurers — continue to join the market, but others have withdrawn capacity or materially reduced their underwriting appetite, creating somewhat of a revolving door with exits and entrances occurring at roughly the same pace.

Retentions and underwriting appetite remain competitive. Transactions below $250M in EV are consistently achieving retentions between 0.50% and 0.60% of EV, and larger transactions can achieve materially lower retentions. Underwriters continue to find ways to deploy the product across virtually every industry sector. Recent transactions have included rare earth mining, energy infrastructure, coal gasification, and healthcare, among others.

However, underwriters are beginning to push back on certain coverage terms, often informed by lessons from recent claims experience. This makes it more important than ever to engage a broker with deep familiarity with the claims landscape and the ability to negotiate policy language effectively.

New and expanding applications

Real estate transactions

One of the most significant recent developments is the substantial increase in the use of RWI in real estate transactions. From individual asset acquisitions and portfolios to REIT transactions, buyers are increasingly using the product to expand post-closing indemnity rights. We estimate that utilization in true real estate transactions has increased more than fourfold over the past two to three years, driven by lower pricing for most real estate deals, greater familiarity with the product among investors and advisors, and underwriters’ increased willingness to offer certain synthetic representations.

Take-private transactions

While limitations on fraud recourse historically presented a meaningful obstacle to insuring take-private transactions, underwriters have become comfortable with a variety of structures that allow these deals to be successfully placed. Deal parties are also increasingly willing to negotiate transactions that more closely resemble private-company acquisitions, with targets providing fuller disclosures and buyers conducting diligence to lower materiality thresholds than has historically been typical.

Secondary and continuation vehicle transactions

RWI has become increasingly common in secondary and continuation vehicle transactions, where sellers often have limited appetite or limited ability to provide meaningful post-closing indemnification. The product gives buyers and incoming investors a dedicated source of recovery, helps bridge the gap between limited seller recourse and buyer expectations, and facilitates cleaner exits for existing investors by reducing ongoing indemnity obligations and allowing distributions to be made with greater certainty following closing.

Tax insurance

Current market conditions

The tax insurance market remains highly active, with growing demand across M&A transactions, ordinary-course tax risks, and renewable energy tax credit placements. Overall U.S. market capacity exceeds $1B, though underwriters continue to be selective with respect to complex, aggressive, or novel tax positions. Average blended rates range from 2.5% to 4.5%, depending on the nature of the risk, the strength of the underlying legal analysis, the quality of diligence materials, the limits requested, and the policy terms sought.

Submission volume has increased materially across the market. M&A and ordinary-course submissions are up approximately 20%, driven by increased adoption among corporate insureds, private equity sponsors, and strategic buyers using the product as a balance sheet protection and risk management tool. Renewable energy submissions are up approximately 40%, primarily due to continued activity in transferable tax credits and sponsor efforts to provide investors and tax credit buyers with certainty regarding credit qualification, recapture risk, and transaction structure.

Rate trends

Rate trends have been mixed. For M&A and ordinary-course tax risks supported by strong technical analysis, pricing has remained relatively stable, though underwriters have grown more disciplined with respect to minimum premiums, underwriting fees, retentions, and diligence requirements. For renewable energy tax credit risks, pricing remains elevated compared to the pre-Q3 2025 market, particularly for larger portfolios, transactions involving step-ups over 20%, and risks involving novel legal issues or limited precedent. This rate pressure reflects increased submission volume, underwriting bandwidth constraints, and heightened scrutiny of certain credit positions.

Key developments

Economic substance scrutiny

The recent Liberty Global decision is likely to increase scrutiny of internal transactions and economic substance analysis. This development cuts both ways: while the uncertainty created by the decision may generate additional demand for tax insurance, underwriters may become more cautious in evaluating internal restructurings, basis step-ups, and other transactions where economic substance is a central element of the insured position.

Renewable energy outlook

Notwithstanding industry focus on OB3 and the perceived “July cliff” for renewable energy tax credits, we do not expect those developments to have a meaningful impact on the tax insurance market in the near to medium term. Most clients proactively safe-harbored substantial project pipelines ahead of that threshold, which should continue to generate transaction activity for several years, in many cases providing visibility through approximately 2030. The phase-out provisions also primarily affect solar and wind projects and do not impact many other energy transition asset classes that continue to generate tax insurance demand. Activity across other federal tax credit programs, including Sections 45X, 45Z, and 45Q, remains substantial.

Capacity and resource expansion

New MGUs and underwriting platforms continue to enter the tax insurance market, adding capacity and helping alleviate bandwidth constraints that have been a feature of the current market. Increased hiring of tax underwriters across the industry should further ease those pressures heading into Q3 and Q4, historically the busiest period for the product.

Underwriter selectivity

Despite strong overall capacity, underwriters are increasingly selective in allocating their resources. Given elevated submission volume, many are prioritizing opportunities with the potential for repeat business and long-term relationships with sponsors, corporates, investors, developers, and advisors. Well-prepared submissions from established market participants that bring substantive expertise to the submission and negotiation process are moving through underwriting more efficiently than one-off opportunities with limited future deal flow potential.

The market remains open and functional, but it is no longer a “send it and get terms” environment. The most successful submissions are those supported by strong legal analysis, well-developed factual records, clear documentation, and realistic expectations on pricing, timing, and policy terms.

Contingent risk insurance

Current market conditions

The contingent risk insurance market encompasses several distinct product lines, including Capital Protection Insurance, After-the-Event Insurance, and Adverse Judgment Insurance, and each of these is experiencing its own dynamics as the market evolves and matures.

Capital protection insurance (CPI)

The market for insuring the value of pools of legal assets remains strong and growing. New capacity providers have entered over the past year, and while total available capacity has not returned to 2023 peaks, approximately $500M to $600M is accessible for large, well-diversified placements. Policy terms have become more flexible, enabling commercial banks and other institutional investors to participate more readily in the space. Premium payment structures have also evolved to better align with investment strategies. Law firms are increasingly utilizing insurance-backed financing to improve their economics, and the use of prospective fund wrappers to access lower-cost capital is growing.

After-the-event insurance (ATE)

As the complexity of cases requiring ATE has increased – particularly in intellectual property and collective action matters – the sophistication required of both brokers and underwriters has grown correspondingly. A notable recent development is the Unified Patent Court’s confirmation that it will accept ATE policies as security for costs, which should encourage broader use of the UPC for patent licensing efforts while also raising the bar for broker expertise in patent litigation. Our team, ranked two consecutive years in the IAM Global 300 for Intellectual Property Strategists, is well positioned to assist clients placing ATE coverage for complex commercial litigation.

Adverse judgment insurance (AJI)

While single-case coverage on the asset side – Judgment Preservation Insurance – remains very difficult to place, insurer appetite for single-case liability coverage has continued its rebound. Carriers are solving for identified legal risks not addressed in RWI or W&I policies through stop-loss structures in M&A transactions, and are expanding appetite into new areas, including permitting risks for large construction projects (in both energy and commercial real estate, particularly in the EU), and policies designed to ring-fence risks in potential minority shareholder disputes. Current capacity ranges from $100M to $200M for well-structured risks.

Rate trends

• CPI – Rates generally remain above a 10% floor established following losses in the JPI market, though the market is introducing greater flexibility in premium timing and structure, including staging and spreading costs over the policy period. Genuinely low-risk portfolios, and particularly post-settlement assets, are beginning to attract rates below that floor.
• ATE – Pricing remains relatively steady at 10% to15% ROL for upfront premiums, with deferred and contingent premiums (payable only upon a successful outcome) ranging from 20% to 40% depending on risk profile. As case size and complexity have increased, underwriters are beginning to offer more bespoke pricing structures, reflecting maturation in the product.
• AJI – Rates are flexible and insurers are willing to be creative in structuring. Truly low-risk, pre-litigation exposures can price as low as 5% ROL. Active litigations, depending in part on the retention negotiated, generally fall in the 14% to 18% ROL range. Premiums can be staged so that a smaller amount is paid at inception, with additional premiums triggered only if the matter fails to resolve by defined procedural milestones.

Environmental insurance

Current market conditions

Pollution Legal Liability (“PLL”) coverage terms remain favorable to insureds, with significant insurer competition, particularly for long-term (10-year) PLL policies. Pricing continues to be historically low, though the downward trend that characterized prior years has leveled off. Operational PLL coverage on shorter-term policies is also broadly favorable, though appetite varies by class of business; U.S.-based PLL insurers, for example, have limited appetite for offshore oil and gas assets.

Rate trends

Monoline PLL continues to price at historically low levels. Blended GL/PLL products are experiencing modest primary-layer increases, while excess coverage on blended forms has seen more meaningful increases (approximately 10% to 15%), reflecting increased claims activity and loss payments on those forms over the past one to two years.

Key considerations

PFAS remains an important coverage issue. Many PLL insurers apply an out-of-the-gate exclusion for PFAS unless specifically instructed otherwise and provided a reasonable basis for extending coverage. The regulatory landscape continues to evolve, with additional states establishing cleanup standards for certain PFAS compounds, a development that will continue to shape both underwriting appetite and the terms available to insureds with PFAS exposure.

Turn insight into action

As transactional liability solutions continue expanding across M&A, tax, contingent risk, and environmental exposures, organizations need insurance strategies that evolve alongside an increasingly sophisticated market. Outcomes depend on aligning insurance strategy with transaction objectives from the outset, where specialized expertise can meaningfully influence results.

The Baldwin Group brings together legal, financial, and insurance expertise to help clients navigate transactions. From initial diligence through closing, we partner with you to evaluate opportunities, navigate evolving market conditions, and structure coverage solutions that align with your transaction strategy and long-term business objectives.