Good afternoon, everybody, and thank you for joining Lockton’s 2025 Transaction Liability Market Update Webinar.

My name is Brian Collet. I am a Senior Broker with the Transaction Liability team at Lockton. Just by way of quick personal background, I'm an M&A lawyer by training, as many people in the Transaction Liability space are. During the financial crisis, I moved over to a private equity asset manager, where relevant for this conversation, I did quite a few Secondary transactions.

I had a few stops along the way, but I joined Lockton two years ago to focus on the Rep & Warranty space, in particular on secondaries, with the understanding at that time that I'd help people save by bundling their home and auto insurance. But it turns out, Lockton is much better at facilitating transactions and using insurance capital to transfer risk. So, with that, we'll get underway here.

As many of you have probably seen over the last year the Transaction Liability team at Lockton has made a very concerted effort to ensure we have a best-in-class global footprint. There have been a number of hires that we've made and a number of announcements, especially Q1 this year, as we roll out that global footprint. In short, and this is a nod to my marketing team, we seek to provide trusted expertise everywhere.

Notwithstanding our global scope, this webinar will have a little bit of an America's regions bias, and I'm joined today by my colleagues, Audrey Bailey and Vanessa Pelletier, both Senior Vice Presidents in our tax practice and our claims department, and they'll address us here in a minute. For today's presentation, I will give a brief overview of what we saw in the Rep & Warranty market in 2025 with a little more detail on the Secondaries RWI market. Vanessa will dive into claims data, which I think is probably of most interest or of high interest of many people, and Audrey will give us some insights in how we're using insurance capital in innovative ways to address tax risks. We'll aim to stay true to time of about 30 minutes on this webinar. If you have any questions along the way, please feel free to drop them in the chat and we'll try to answer them in real time. But if we run out of time or aren't able to address your question, obviously, please do not hesitate to reach out to any of us here on this webcast, or anyone on the Lockton team, and with that, we'll get into it.

In 2025, depending on the source, I think private market steel volume was probably flat to slightly up, some sources say slightly down.

For us at Lockton our practice really outpaced the market, and we had a very robust year with a meaningful uptick in deals and volume.

In this space generally, we saw some carriers no longer writing Transaction Liability insurance, while other carriers brought in more capacity. We kind of view the ins and outs to be net neutral to the market and generally Rep and Warranty insurance as a product was still insured favorable.

On the pricing and premium side, we saw rates and premiums continue to rise throughout 2025 from the lows of 2024. We reached a nadir of about 2.5 % rate on line - the cost is two and a half percent of the limit that we're replacing - and we're seeing rates now below the low 3%. So obviously it depends on how much you're buying, and the nature of the deal, but typically rate on line is falling in that 3.1 - 3.3% range. Some insurance markets that we work with have noted the rise in rates as a necessity, really, for the medium, long-term sustainability of the product, and given the claims data that's is continuing to come out post Covid.

On the retention front, retentions have remained low and insured favorable at that 0.5 - 0.6% range, with a 10 basis point drop after the first year post closing. We are continuing to see nil retention for true fundamental reps in transactions, what is defined as true fundamental reps continues to be a source of a place of negotiation, but we've seen these retentions stay low, notwithstanding the rise in rates with the changes in the economics in the insurance markets here. We've seen in this last year, more carriers tried to distinguish themselves on qualitative terms. For example, their coverage scope, the commerciality with which they do their underwriting and their claims processing. Again, all of these things I think, are insured favorable as things unfolded throughout 2025.

I do want to take a quick minute and speak about Secondaries RWI, but to set the stage, I think I need to take a step back and give an overview what the Secondaries market is. We see a lot of articles in the press about Secondaries fundraising hitting record volumes and some really sizable funds that have come to market in the last 12 months. A lot of press around continuation vehicles, some of the regulatory issues in and around that, and even some of my colleagues at Lockton will ask me, what is it that you do here? So I'll take a minute and just kind of provide an overlay of the Secondaries market, really, in its most basic form.

Secondaries transactions are means through which there's liquidity options for investors in private markets funds, and that can be LPs or GPs or co-investors. Historically, the secondaries market as kind of in in modern times, was really a liquidity option for limited partners in closed ended funds, where they could sell an LP interest to another institutional investor. That is what we now call the GP led secondaries market, where fund managers are taking portfolio companies that they currently manage in flagship funds, moving them into a continuation vehicle or continuation fund, where they can continue to manage it, and bring in new capital and provide liquidity options to existing limited partners, or the option to roll over and continue to be invested in the portfolio company. Now that's on the GP led side of the market. There is still a healthy LP led secondaries market that persists, where LPs are trading LP interest between institutional investors. I would say generally, any kind of weird or funky deal that doesn't fall into a buyout type structure is kind of thrown under the umbrella of Secondaries. So we're seeing GP stakes transactions along with these LP and GP led deals.

The partners at Lockton Transaction Liability group really innovated the secondaries product about six years ago, and as that market has grown, so too has the brokering that we've done in these kinds of deals. 2025 was another consecutive year of growth in the Secondaries market. And again, fidelity on these numbers depends on the source. But we're in excess, of $200 billion of total deal volume. And as this product is developed, there's been more and more uptake in the market, and market penetration, we're estimating 60 to 70% of all GP led deals have RWI on them. We are using insurance capital to ensure different aspects of the secondaries market. Like I said, its LP trades, which the uptake, for a lot of reasons, isn't quite as much as on the GP LED Side. We're seeing it in end of fund life circumstances, which loosely falls under the umbrella of secondaries. And we're seeing it in GP stakes transactions.

One question that we often get is in and around the claims rate for Secondaries. Not dissimilar to RWI, once there's uptake and penetration in the market for buyout RWI, there was a number of years of lag before we started seeing claims. On the secondary side of the house, we are seeing our first claims being processed and paid, and there's more and more claims activities that's building. So I'll end there on kind of the market overview for RWI, both buyout and secondaries. You know, one benefit of doing a 2025 update a couple months into 2026 is that we can have some confirmation bias of the things that we were forecasting for 2026. But today, we do expect M&A volume and secondary volume to continue to rise in 2026 and commensurate with that, the placement of RWI.

The Rep and Warranty insurance product, however, is really nothing if it doesn't work and if claims aren't paid. And with that, I will pass it to my colleague Vanessa, who will go through some of our 2025 claims data and kind of show how this product has worked in real life.

Thank you, Brian. Very exciting stuff you have going on over there. I'm just going to start by briefly reintroducing myself. My name is Vanessa Pelletier. I am a Senior Vice President in the Lockton Transaction Liability group. My role is dedicated exclusively to assisting Lockton insurance work through the RWI claim process.

Prior to joining Lockton, I was the head of claims at an MGA where I worked exclusively on these RWI claims on the carrier side. And prior to that, I was a partner at an insurance coverage firm based in New York.

So from a claims perspective, the headline is that Lockton insurance passed a major milestone, recently recovering more than $1 billion dollars in claim payments through our RWI claims. Through year end, 2025 we have actually recovered more than $1.4 billion in RWI claims. $725 million of that amount was paid out in the 2025 calendar year alone. And when you account for retentions, the total amount of loss that's been recognized by RWI carriers is just a little over $1.6 billion.

So the takeaway, in our view, is clear RWI claims are being made and they are absolutely being paid. We now have over 750 claims on our books, about 230 of which are still open. So that really provides us with a solid, meaningful data set with which to draw some credible conclusions from about RWI claims and RWI claims behavior, and that's some of what I'm going to talk about today.

We also analyzed claim severity with a focus on how big the claim payments are. When we look at severity, we can see that while small claim payments, which we characterize as 5 million or less, those first two buckets, account for the vast majority of the claim payments that are made by carriers, at about 70%, they only make up about 20% of the total amount paid. Yet, on the other end of the spectrum, payments of 25 million or more, are rare, accounting for only 3% of the total number of claim payments by amount, but 44% of the total dollars paid. So what does that tell us? The real financial exposure of RWI sits in a small number of high severity claims. These typically arise from core issues such as financial statements, major customer relationships, or issues with assets that were critical to the acquisition, where the breach really directly hits the enterprise value of the business that was acquired.

So next, we looked at breach type in a couple of different ways, not just by how often the reps are implicated, but also how often they get paid, and how large those payments tend to be. So first, here's a view of breach frequency, the types of reps, the buyers, most commonly reported as being breached. And just for context, we analyzed all breach types. This chart only shows the top five because we wanted to keep things clear and comparable. Overall, you'll see the types of breaches reported remain broadly consistent year over year. We have the same top five breach categories appearing from 2021 through 2025. There was a relatively noticeable uptick in the compliance with laws rep, moving from 2024 where they accounted for about 20% of the claims being reported, to 2025, where they're up to 30%. On the other hand, the tax breaches continue to appear in the top five, but their frequency has been gradually trending downward over the last several years.

Now we shift from frequency in what gets reported to what gets paid. So just like with the breach submissions, the mix of breach types that actually result in claim payments is also fairly consistent year over year. Financial Statements remains the number one driver of paid claims in almost every year, the only exception being 2024 where there was a somewhat significant spike in payments attributable to the material customer and contract reps - that data is still developing. You will see that there is just one other note of noticeable difference between this chart and the chart that we also adjust before that, and that's that the asset and equipment rep replaces the employment rep. That swap makes sense to us. Employment reps, or labor reps, they get triggered fairly often, usually as a result of a former disgruntled employee who may be raising a wage and hour claim or a discrimination claim. But those matters typically get picked up by EPL or absorbed within the SIR so they don't lead to payments with the same level of frequency as the other reps.

And then last, we look at severity, the types of breach types that drive the largest dollar payouts. So like years past, financial statement breaches consistently account for the largest driver of total loss. This is not surprising to us, given that issues like overstated revenue, understated expenses, other accounting issues that can directly impact the enterprise value of the company, and that triggers loss calculations based either on a multiple of EBITDA or some other diminution in value. So that is why these claims consistently sit at the top of the severity chart. Then under that, we have the next major driver being material customer and contract breaches, which likewise have the potential to impact to the enterprise value of the business, particularly where there's an underlying relationship or contract that was critical to the valuation model. And just a quick side note, this chart covers data from 2021 onward, when we began tracking this sort of data, Lockton a consistent way. It's worth noting we were recently involved in a pre 2021 tower of coverage claim that involved a breach of the condition of assets representation that claim resulted in a substantial payment from over 21 different carriers. And we thought it was worth noting, because although it's not reflected in the chart, it's a reminder that condition of assets claims, while reported less frequently, bear the potential to be very significant, especially in asset heavy businesses where the buyer's valuation thesis really does depend on the strategic importance of those assets.

Next, we looked at claim behavior and how it varies by enterprise value. Essentially, does the deal size influence frequency or severity. So to start, here's a high level view of claim activity broken out across different EV bands, including the percentage of policies placed within each of those EV bands, claims made, claims paid, and total amounts paid. So you'll see across our 2021 to 2025 placements, the answer on frequency is clear. While there are some small variations, deal size does not materially affect how often claims are submitted or paid. Claims show up across all EV bands at rates that are really broadly proportional to the number of policies that are placed within each band. But where deal size does matter is severity. So the lower EV deals account for a larger percentage of the policies placed and generate a larger share of the claim counts, but only a small share of the total dollars paid. And to be specific, deals with a EV of 100 million or less account for 43% of the claims made, 45% of the payments by count, but only 15% of the total dollars paid, whereas deals over 1 billion in EV account for just 5% of the claims made, 2% of the payments by count, but over 25% of the dollars paid. This pattern makes sense to us. Bigger deals have bigger limits, which means greater potential payouts when something goes wrong. But we did want to take a deeper dive and also analyze the question: are larger deals more likely to trigger a significant payment, and we define that as meaning 50% or more of the respective policy limit? So our data on that suggests no they do not. Across EV bands, the likelihood of a significant payment or a payment of 50% or more of the limit ranges from 7 to 19%, but there's no clear directional trend as deal size increases. So the takeaway for us is deal size does not impact claim frequency or the likelihood of a major loss, but it does impact the potential dollar amount when one occurs. Unless we looked at timing, specifically when claims tend to surface and how long they take to get resolved once they're reported to start, we look at when claims typically get reported after a policy accepts.

So there are a lot of variables that will impact timing of when a claim gets reported, including the type of business, the type of breach, how familiar management is with the RWI claims and process. However, the overall trend is relatively static. The chart that you all see right now is almost identical to the chart that was in our last year's update. And the upshot is that about half of all claims are reported within the first 12 months after inception, and more than 80% within the first 2 years. So the vast majority of issues materialized early, and the window for new claims really tapers off after year 2. And then the next question, what does timing look like after the claim notice is submitted? Once a claim is notified, the resolution timeline depends on a number of variables as well, including the complexity of the issues, the quality of the documentation supporting the breach and the responsiveness of all the parties involved. Some claims resolve quickly when the issues are straightforward, more complex matters naturally take longer. The data here is also consistent with prior years. 52% of the claims are resolved and paid within 12 months, and close to eight. 80% resolved and paid within 18 months.

Claims that extend beyond that window typically involve complicated financial issues or other external proceedings, such as a litigation or regulatory proceeding that neither the insured nor the carrier can control.

The timeline question we get a lot, particularly from insurance at the beginning of the process, is, what causes these claims to drag on, and what can we do to speed up the process? I would say that there are two primary drivers to the timeline. The first is the complexity of the claim itself, which we don't have much control over. But for example, substantiating a preclosing tax assessment not having been disclosed prior to closing can be relatively straightforward in comparison to say, a financial statement claim based on the fact that revenue was not recognized in a manner consistent with gap. And when you layer on top of that, a loss claim based on a diminution value, and that will require the carrier to expand their analysis into how is the business value, what assumptions drove the purchase price, all of which bears the potential to add to the timeline of the process. But another major factor is responsiveness. Carriers are bound to certain timelines in the policy with within which they have to respond. But insureds are not, and we found that most insureds do not have a dedicated quarterback assigned to responding to our RWI claims and requests. They all have day jobs, and gathering some of these documents and responding to these requests can be very time consuming. So, in our cases, the claims that have stretched on the longest are usually ones that involve long gaps by the insured in responding to carrier requests.

And I think that covers it with me. So just to close it out, we now have over $1 billion in claim payments like I mentioned earlier. Our view is that the numbers really do speak for themselves. The RWI product is delivering real, measurable value for insureds.

But RWI is not the only line seeing activity and transactional risk. Tax insurance continues to gain traction as well, with rising numbers of placements and even some early claims coming through. So to walk through that piece of the market, I'm going to pass it over to my colleague, Audrey Bailey.

Thank you, Vanessa. Very insightful claims information. As Vanessa mentioned, my name is Audrey Bailey. I'm a Senior Vice President here at Lockton doing tax insurance. I've been at Lockton for four years, and prior to that, I was doing M&A tax at a big four.

As for the tax market update, we've seen the following trends. First, several new carriers have entered the market since the fall, which has added much needed capacity for all types of tax risks. However, some insurers are becoming more selective with their tax capacity. For example, there is a reduced appetite for certain types of state taxes, including sales and use tax risks.

Second, we have seen international growth with notable expansion and coverage for Indian tax risks. This pairs nicely with what Brian mentioned at the top of the call the Lockton international expansion helps us meet clients, expanding needs and additional jurisdictions. We anticipate an overall demand to continue to rise as taxpayers navigate the evolving rules.

A major area involving evolving rules is renewable energy tax credits, the one big, beautiful Bill act or OB three introduced major tax credit changes, which accelerated sunsets for some credits and extended the runway for others.

The number of production tax credits or PTC policies, grew significantly, driven by a 115% increase in 45X policies. And just as a reminder, 45X relates to the production credit for advanced manufacturing. So, the production of solar components, wind components, battery components. Then also we saw a 200% increase in 45Z policies. Again, 45Z relates to clean fuel production tax credit. So this includes renewable gas, low carbon, ethanol, biodiesel. Pricing for tax credit insurance policies is typically between 2 to 4% of the policy limit, but will vary depending on the particular risk timing, scope of coverage and policy size. Speaking of scope of coverage, the shift to broader coverage has persisted since 2023 and it seems here to stay, as broad coverage now makes up roughly 80% of all renewable energy tax credit policies, while narrow coverage hovers around 20%.

A common question we get is, what type of renewable energy projects are being insured? So, before we saw a lot of solar and wind, but insurers are now providing coverage for an increasingly diverse portfolio of renewable energy products, including emerging technologies and hybrid generation facilities.

As for the final market trend, we've seen the market expansion in types of risks and in international tax risks. So domestically, we've seen a real estate tax insurance usage surge. We also note that the rising cross border scrutiny is driving increased use of tax insurance for transfer pricing exposures and treaty qualification.

One final question we often get is, which jurisdictions have tax insurance availability? As I mentioned earlier, we've seen an expansion in India, but generally, tax insurance is broadly available in the US, Canada, European jurisdictions with narrower availability in Latin America and China.

I'll turn it back over to Brian to close us out.

We had one question come in specific to secondaries around a transaction opinion, which I interpret to mean a fairness opinion, and whether it is best practice to obtain a fairness opinion to support a Secondary transaction.

While the private funds rules no longer apply to Secondaries that was struck down and is not dispositive regulation right now, the insurance markets and we believe that the actors within the secondary space find it best practice to still obtain a fairness opinion specific to secondaries RWI. In the absence of a fairness opinion that the carriers will want to see third party, party price validation, either through a robust sell side process, via investment bankers or some other indicia of price validation. Otherwise, there may be an exclusion for inadequate consideration in connection with the transaction. This is a part of the secondary space that will continue to evolve, as we've seen some of the public, limited partner disputes, in particular the EMG case, come to the fore, and so something we're certainly staying close to. As of now, it is best practice to have a fairness opinion in and around continuation, vehicle transaction.

But with that we have gone over time. I appreciate everyone joining, and hopefully this was informative.

Should you have any other questions like I said before, please don't hesitate to reach out to any of the three of us, Audrey, Vanessa or I, or anyone else on the Transaction Liability team, and we look forward to working with everybody through 2026, thank you.