Warranty and Indemnity Insurance

Warranty and indemnity (W&I) insurance has become a valuable tool for mergers and acquisitions (M&A) deal facilitation employed by both private equity firms and strategic buyers and sellers. It is used by buyers &and sellers offering cover for representations, warranties and indemnities, contingent tax, and other M&A liabilities.

What is W&I insurance?

W & I insurance can help facilitate and protect against financial loss arising from Mergers and Acquisition (M & A) agreements. Available to both parties in a transaction, our policies can minimise seller liability on business exit, enhance bids by potential buyers, and bridge differing indemnification expectations.

Features of warranty and indemnity insurance

While the timing, size and investment strategy behind each portfolio varies, every business looking to purchase add-ons to their platform companies wants a streamlined, efficient process. Having to negotiate a new insurance policy for each acquisition adds unnecessary time and cost. We can access W&I cover that gives buyers and sellers the certainty they require behind each transaction.

Smaller transactions, such as portfolio add-ons are often unnecessarily uninsured due to historic issues around complexity, which have now become perception. However, these risks are now easily insurable with solutions structured to work on the smallest of add-on acquisitions, with no minimum premium needing to be purchased and no minimum transaction size.

We can arrange coverage that agrees a master policy wording at the time of the primary platform acquisition and add on endorsement once each subsequent acquisition is completed. An aggregate policy limit can be agreed upfront based on the anticipated combined enterprise value of the portfolio, or individual policy limits can be agreed for each deal if add-on acquisitions have not yet been identified.

The solution can be structured in a number of ways but offers the potential for one limit, one premium, one fee and one aggregate retention across an entire portfolio of companies. It negates the need for individual policy negotiations, delivering a significantly more efficient process for smaller deals. An added benefit for you is acquisitions are covered by a partner you know and trust.

Benefits of our W&I insurance

  • Bespoke cover - Each policy is tailored to a specific M&A transaction, ensuring that cover is flexible enough to address the specifics of the deal.
  • Limited seller security - Companies located in overseas jurisdictions may not offer a buyer sufficient security for post-indemnification claims. Our policies offers access to stable and high quality capital recourse.

W&I offers a number of benefits to both buyers and sellers: 

Sellers:

  • Carve out of non-core assets
  • Heading to or in distress
  • Pre-emptively wrapping up known issues
  • Bridging expectation gaps
  • Removing high liability caps

Buyers:

  • Distress
  • Seller solvency / covenant strength
  • Protect roll-over management team
  • Satisfy requirements of lenders or internal risk management
  • Buying from liquidators / trustees

Other transaction liability insurance

As well as W&I insurance, we can arrange a full suite of transaction liability insurance products, including warranty and indemnity insurance (W&I) and insurance for contingent tax and other liabilities arising in the context of mergers and acquisitions (M&A).

We can also access a simplified range of transaction liability products aimed to speed up the process for private equity firms and businesses pursuing a portfolio of add-on acquisitions for existing or newly acquired platform companies.

Warranty and indemnity insurance FAQs

Is warranty and indemnity insurance for buyers or sellers?

W&I insurance can be obtained either by the buyer or the seller in a transaction to protect either party from unknown or unforeseen liabilities resulting in financial loss from a breach by the seller of the warranties (and/or indemnities) contained in the sale agreement.

In a typical transaction, the buyer will seek broad warranties from the seller to protect against losses which the target (or the buyer) may suffer as a result of a breach of those warranties. A seller on the other hand, will seek to limit the warranties it gives to the buyer. W&I insurance is used as a key tool used to bridge this gap. From the buyer’s perspective, a buy-side W&I insurance policy will, subject (usually) to a policy excess depending on the target sector and jurisdiction, serve as the direct (and in many cases only) recourse for breach of the warranties given by the seller.

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