Analysis summary
Is weakness in the transactional liability market a soft-market phase or something structural? Sources agree on the symptoms, falling rates, broader coverage and compressed retentions, but split sharply on the cause. This analysis shows why some see a fiercely competitive market that has pushed pricing and terms too far, why a growing minority argue the product itself carries inherent adverse selection and moral hazard, and what the latest Gallagher and Aon claims data reveal about deteriorating US performance. It delivers fast insight on the role of nil retentions and synthetic warranty structures, the conflicts created by MGA delegation, and whether rate alone can fix what is wrong.Subscribe to get comprehensive access to our exclusive analysis in the full platform.
Over the last few years, the transactional liability (TL) market has faced the familiar symptoms of a soft market: falling rates, broader coverage and growing competition.
Few dispute that these pressures exist. What is increasingly dividing opinion, however, is whether they are simply cyclical or evidence of deeper structural problems within the product itself.
That debate has sharpened in recent months, with sources broadly agreeing on the symptoms but differing sharply on the cause.
While some see a competitive market that has temporarily pushed pricing and coverage too far, others believe the class is confronting more fundamental questions around incentives, information asymmetry and the limits of risk selection.
Many sources canvassed by this publication agreed that pricing in parts of the European TL market has fallen to unsustainable levels and that coverage has broadened too far in other areas, particularly UK SME and middle-market transactions.
However, several argued this simply reflects the dynamics of an intensely competitive soft market rather than a fundamentally challenged product.
Effective risk selection and underwriting discipline remains at the crux, sources said, while others pointed to the harsh reality that disciplined underwriting in such a fiercely competitive market often meant simply losing the business altogether.
"You can either be a wise underwriter, or you can have business right now," one source said. "You can be the smartest unemployed underwriter in the market."
The TL class has, after all, evolved far beyond its origins as a relatively niche escrow replacement tool, demonstrating an ability to innovate that many areas of P&C lack. This key facet has been described as TL's "special sauce" by sister publication Insurance Insider US earlier this year.
Even sources supportive of that evolution acknowledged that parts of the market have pushed too far, pointing in particular to transactions written with little or no retention and highly competitive SME and renewable energy business priced below adequacy.
Another example is the growing use of "synthetic" warranty structures, where insurers rely on standardised warranty suites rather than bespoke warranties negotiated between buyer and seller, potentially extending cover beyond the risks contemplated in the underlying transaction.
However, some sources argue that disciplined underwriters can still avoid the worst-performing parts of the market, even if doing so increasingly comes at the expense of growth and relevance.
But a smaller but increasingly vocal group of market participants argue that the problems run deeper than cyclical soft-market behaviour.
In a trio of LinkedIn posts over the last month, Mosaic CEO Mark Wheeler questioned whether the product's economics and underwriting framework are still properly aligned.
In one comment, Wheeler made the point that TL underwriting is "not simply a selection problem", adding, "You're not underwriting assets. You're underwriting information… more precisely, the risk that something material was not found."
His core point is that the policy can be used as an arbitrage by cedants for weaker due diligence in doing M&A or a seller being less forthright in their disclosures when they have little or no skin in the game.
Other sources highlighted the rapid influx of MGAs bearing no risk, frequent turnover among capacity providers and the rise of lawyers-turned-underwriters as factors that may have further obscured underlying underwriting performance in what is becoming more of a long-tail class.
Aon's latest TL claims study stated that in the US, approximately 51% of representations and warranties (R&W) claims were notified more than 12 months after closing, continuing a trend of claims being reported later in the policy period and "later than the R&W would generally survive absent insurance".
"We all have a small bit of the market which informs our understanding of what we see as the problem," one source said. "But if you step back, it's structural."
Looking ahead, most expect TL to remain a significant and in-demand product given continued buyer appetite and the central role it now plays in facilitating M&A transactions.
The more difficult question is whether the market can restore underwriting discipline without fundamentally reshaping aspects of the product itself.
The TL market has long centred its debates around what many see as its defining problems: weakening rates and steadily broadening coverage, which are the key features of a soft market.
Sources were quick to concede that pricing remains low relative to the exposures and that the market urgently needs to correct course.
Gallagher's latest M&A report looking back on 2025 found that premium rates were still sub-1% across UK and Europe, being highest in the UK (0.84%), followed by Southern Europe (0.79%), while Central and Eastern Europe (0.42%) and Northern Europe (0.65%) benefited from more competitive pricing.
In the US, R&W rates were firming slightly to 3.23% in Q4 2025 from 2.5% in Q4 2024, according to Gallagher.
Coverage has broadened materially in recent years, and sources acknowledged that parts of the market have become increasingly aggressive, with nil-retention structures, insufficient diligence and expansive coverage positions repeatedly cited as examples of how competitive pressure had weakened underwriting standards.
Several sources cautioned, however, that broader coverage does not necessarily mean insurers are taking more risk than they once did. One noted that when the product was "less commoditised", policies often contained relatively few exclusions beyond insured fraud and actual knowledge provisions.
As retentions have compressed, insurers have increasingly responded with more targeted exclusions, tighter qualifiers and greater specificity around coverage, making comparisons with earlier vintages less straightforward.
From 2022 onwards, while downwards rating pressure was intense, portfolio quality also deteriorated as retentions fell, with zero retentions now typical for UK deals.
"The underwriters have pushed it too far, the clients have pushed it too far, and that's why the US is performing even worse than the international market," said a senior underwriter.
Some sources went as far as to say that in the US, primary R&W is "unprofitable across the board as it stands", although excess layers "remain healthy".
By contrast, several argued that profitability remains achievable in parts of the international market, particularly on smaller deals and excess placements, although concerns persist around the adequacy of pricing on mid-cap transactions.
The market is more divided on whether TL is evolving from a predominantly severity-driven line into one with a more meaningful frequency component.
Several sources acknowledged that claims frequency has increased in some areas, but argued the class remains fundamentally severity-led.
Others said the trend is highly region-specific, pointing particularly to the US primary market and, to a lesser extent, the Nordics, where TL penetration is higher and policies are being used "more aggressively than they used to be".
This is reflected in Gallagher's report, which found that in the US, claims activity remained high, with 20% of policies generating notifications and 4% leading to payments.
Loss severity was significant, with one in four paid claims reaching full policy limits, it added.
A recent TL claims report by Marsh found that US claim payments last year increased by 39% over 2024, driven by a small number of high-value losses.
The latest Aon report studying TL claims over 2025 found that larger claims are becoming more common in North America, with around 23% of paid claims exceeding 60% of policy limits, 14% exceeding 80% of limits and 8% resulting in full-limit payments.
Between 2023 and 2025, roughly 4% of notified claims involved alleged losses exceeding $100mn, it said.
In the US, Aon added that claims continue to emerge well beyond the period typically covered by seller escrows, with more than half of notifications now arriving over 12 months after closing. These claims have generated nearly $700mn of paid losses to date.
In the UK, warranty and indemnity claims notifications surged 150% year-on-year in 2025 to "unprecedented" levels for the country, according to the Marsh report.
Given these cyclical issues in the class, many insisted this remains fundamentally a question of underwriting discipline and risk selection rather than structural uninsurability.
A source argued that the issue was not that "the market's too broad", but that some underwriters had "chosen to make it much broader for themselves" by "giv[ing] too much away".
"That's your job as an underwriter," the source added.
However, the recent deterioration in TL results is increasingly being viewed by parts of the market as evidence of deeper structural issues within the product, rather than simply weaker execution by individual underwriters.
Wheeler echoed that view, arguing that "adverse selection is inherent – sellers and advisers always know more" and warned that even small shifts in retention levels, coverage scope or wording can produce "non-linear outcomes", raising the question of whether the market is ultimately "changing seller behaviour".
Some underwriters agreed with his take, with a few pointing to multiple layers of "moral hazard" embedded within the product's structure.
They argued that the rise of transactions where sellers retain little or no post-closing liability has altered incentives within deals, while increasingly aggressive synthetic structures have expanded the scope of risks insurers are being asked to cover.
One source argued that synthetic warranty structures can be appropriate in certain situations, particularly insolvency deals where administrators are "not in a position to warrant".
But such structures should typically result in narrower coverage because the warranties are directly tied to the diligence undertaken, the source added.
"If that's not the case, then you just have very broad warranty suites, and it becomes more window dressing around the due diligence."
The product has evolved beyond a passive risk-transfer mechanism and is now influencing the incentives of buyers and sellers throughout the deal process, some sources said.
A source argued that this dynamic can manifest itself in transaction negotiations, where the existence of insurance alters the incentives of buyers and sellers.
As an example, the source pointed to what they described as inadvertent admissions that parties were shaping disclosures with the policy in mind. "I've seen footnotes where buyers are constantly reminding sellers ... 'please say it the way we want you to say it.'"
The source noted that when TL penetration first began "skyrocketing" around a decade ago, the scarcity of carriers in the space and 4%-5% rates made it easy to make money.
"Whereas today's transaction agreements are not arm's length transactions. They're collusive and that cannot survive."
"The information asymmetry is extreme," said a source, arguing that the most severe losses in TL still typically stem from seller non-disclosure, rather than simply from broader coverage wording or lower retentions.
The market's growth phase also introduced structural pressures around delegation and underwriting incentives, particularly as MGAs proliferated and carriers sought exposure to the rapidly expanding class, sources said. "You don't get premium volume by being disciplined," a source said.
TL is predominantly written by MGAs, but some sources argued that this is the "least delegable product ever", and unlike standardised lines like auto insurance where the information required is objective and verifiable, TL policies and transaction agreements are "negotiated anew every single time".
MGAs create a "complete conflict of interest with their carriers and an absolute asymmetric information advantage", an underwriter said.
While most of the market is calling for an increase in rates and higher retentions to help navigate the class towards greater profitability, some sources argue that "these structural issues outpace rate".
"The conversation has to be around these moral hazard issues coupled with the principal-agent problem and the delay in insurance companies understanding their results."
While sources remain deeply divided on whether the market's current pressures are cyclical or structural, few disputed that some form of course correction is needed.
"I think most people I talk to realise there's a problem," one source said, "but it's not in their real interest to acknowledge it."
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Over the last few years, the transactional liability (TL) market has faced the familiar symptoms of a soft market: falling rates, broader coverage and growing competition.
What are TL premium rates across the UK and Europe?Gallagher's latest M&A report looking back on 2025 found that premium rates were still sub-1% across UK and Europe, being highest in the UK (0.84%), followed by Southern Europe (0.79%), while Central and Eastern Europe (0.42%) and Northern Europe (0.65%) benefited from more competitive pricing.
How severe are TL claims in North America?The latest Aon report studying TL claims over 2025 found that larger claims are becoming more common in North America, with around 23% of paid claims exceeding 60% of policy limits, 14% exceeding 80% of limits and 8% resulting in full-limit payments.
When are US R&W claims being notified?Aon's latest TL claims study stated that in the US, approximately 51% of representations and warranties (R&W) claims were notified more than 12 months after closing, continuing a trend of claims being reported later in the policy period and "later than the R&W would generally survive absent insurance".
What are synthetic warranty structures?The growing use of "synthetic" warranty structures, where insurers rely on standardised warranty suites rather than bespoke warranties negotiated between buyer and seller, potentially extending cover beyond the risks contemplated in the underlying transaction.
Why is TL underwriting described as an information problem?Mosaic CEO Mark Wheeler made the point that TL underwriting is "not simply a selection problem", adding, "You're not underwriting assets. You're underwriting information… more precisely, the risk that something material was not found."
Why is MGA delegation a concern in TL?TL is predominantly written by MGAs, but some sources argued that this is the "least delegable product ever", and unlike standardised lines like auto insurance where the information required is objective and verifiable, TL policies and transaction agreements are "negotiated anew every single time".
By Ayesha Venkataraman
03 June, 2026
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