Representations and Warranties Insurance Products

Representations and Warranties insurance provides coverage to guarantee the contractual representations made by sellers associated with corporate mergers and acquisitions. By insuring a business transaction, buyers are able to protect their assets and securities in order to protect their investment in case a deal goes wrong or there is a significant error.

Representations and Warranties insurance is also known as RWI, Warranties and Indemnity insurance, W&I, Transaction Liability, Mergers and Acquisitions insurance and M&A insurance.

Representations and Warranties insurance is catered for business buyers and sellers entering purchase agreements. Typical types of buyer and seller include:

• Private equity firms
• Multinational companies
• Large strategic acquirers
• Family-owned businesses
• Selling shareholders
• Private companies
• Hedge funds
• Company founders
• Law firms
• Consultants
• Other mergers and acquisitions advisors

Representations and Warranties insurance policies may be taken out by either the seller (sell-side policy) or the buyer (buy-side policy), however the majority of policies are taken out by buyers.

Representations and Warranties insurance covers damages resulting from breaches of warranties and indemnities given by the seller in an M&A transaction.

For buyers it can provide:

• Competitive advantage in bid/auction processes
• Added protection above any negotiated indemnity cap
• Longer survival period for indemnification resulting from breaches
• Protection against collectability or solvency risk of an unsecured indemnitor

For sellers it can provide:

• Cleaner exits by reducing escrows or purchase price holdbacks and enhancing returns on sellers’ capital
• Alternative recourse to shareholders in take-private transactions
• Protection from financial loss resulting from representation and warranty indemnity claims

Certain types of transaction or contract are excluded from many Representations and Warranties insurance policies, including:

• Minor transactions
• Forward-looking warranties
• Environmental issues
• Tax issues
• Previously known risks
• Fraudulent activities
• Fines and penalties

In order to receive a quote for Representations and Warranties insurance the buyer or seller will usually have to submit the following:

• Financial information and/or the most recent annual audit of the target company being sold
• Draft purchase/sale or merger Agreement
• Confidential information memorandum and/or seller’s management presentation
• Signed term sheet/LOI
• Details of the proposed policy holder, including the requested limit and retention amount sought
• Relevant information or due diligence materials

Representations and Warranties insurance is normally calculated as 0.9 up to 1.5% of the risk insured, plus the applicable insurance tax. The size and nature of the risk will also be factored.