A small number of large claims are driving the economics of warranty and indemnity (W&I) insurance in ways the market has not fully priced, according to a new paper from the International Underwriting Association (IUA). Published this week by the IUA’s Transactional Liability Committee, the report argues that W&I has moved from a supplementary safeguard to the primary, and often sole, source of post-closing recovery in M&A transactions. That shift has changed the product’s risk profile in ways the market is only beginning to absorb.
The IUA’s report draws on published claims data from Marsh, Aon, and WTW to argue that severity, rather than frequency, is now the central underwriting challenge. A small number of large losses are driving a disproportionate share of total payouts.
According to Marsh’s 2026 Global Transactional Risk Insurance Claims Report, cited in the paper, claims exceeding US$20 million represented less than 8% of claims paid in 2025 but accounted for approximately 43% of total payout dollars. Aon’s 2026 Global M&A and Transaction Solutions Claims Study, meanwhile, found that 68% of total amounts paid in 2025 were attributable to claims calculated using valuation multiples, where a breach that reduces a financial metric such as EBITDA is multiplied by the deal’s pricing multiple to calculate loss. Financial statements and material contracts breaches drove the bulk of that figure.
Retentions, the amount the insured bears before the policy responds, have fallen steadily. Marsh data referenced in the IUA paper shows that for deals above US$100 million, average initial retentions fell below 0.5% of enterprise value. At the same time, around 69% of Marsh-placed North American transactions in 2025 carried no seller indemnity, meaning the policy was the buyer’s only meaningful recourse if something went wrong.
That combination of lower retentions and no seller backstop concentrates economic risk in the policy itself. Where sellers once had skin in the game through their own indemnity exposure, disclosure and warranty quality were partly self-policing.
The IUA paper notes that where seller exposure is nominal, that discipline weakens, and coverage has broadened to fill the gap. The practical consequence is that W&I policies now carry more of the underlying transaction risk than the product was originally designed to absorb.
An indicative portfolio model constructed in the IUA paper, using published claims data, an 18% notification frequency and a 20% conversion rate from notification to paid claim, produces a gross loss ratio of approximately 82%. Once brokerage is deducted, the net loss ratio reaches roughly 101%, before claims handling and other expenses. Pushing notification frequency to 23% drives that figure above 128% on a net basis. The model is illustrative, not a market estimate, but it shows how quickly the maths deteriorate when severity and frequency move together.
In Veranova Bidco LP v Johnson Matthey Plc [2026] EWHC 1021 (Comm), the English High Court dismissed a buyer’s fraud claim despite finding that the Key Contracts warranty had been breached and that disclosure had been inadequate. Because Veranova had taken out W&I insurance under the sale and purchase agreement, it had agreed to limit warranty claims against the seller to those arising from fraud.
The court found the fraud threshold could not be met as it was not possible to aggregate the knowledge of different executives within the seller to construct a finding of corporate dishonesty. The court held that a single, identifiable individual within the seller must have known both the relevant facts and that those facts rendered the warranty false. Veranova was left without a remedy, despite a finding of clear breach.
The IUA paper uses the case to make a broader underwriting point. Subrogation against a fraudulent seller is not a reliable backstop where the fraud threshold is this difficult to clear. Recourse on the back end does not substitute for discipline on the front end, whether through retention levels, disclosure quality, or the rigour of diligence before the policy is bound. The Veranova outcome also has direct relevance to how brokers structure client advice around the limits of seller recourse in W&I-led transactions.
Global W&I notifications rose approximately 35% year on year in 2025, according to Marsh, but the UK recorded a 150% surge, the most pronounced increase of any region tracked. Notifications in EMEA nearly tripled relative to 2023, reaching 240 claims across 152 transactions.
One analytical framework the paper proposes separates the policy into distinct elements: legal expenses, first-party loss, third-party claims, regulatory claims, and multiplied damages coverage. The basis for that separation is that these exposures carry different severity profiles, notification dynamics, and underwriting characteristics that a single broad policy form may not adequately reflect. Several of these coverage types, particularly regulatory and third-party claims, can be long-tail and difficult to control once proceedings are under way.
Notification discipline is another pressure point the paper addresses. Aon’s 2026 study found that approximately 51% of North American claims are now notified more than 12 months after closing. Late notification reduces the insurer’s ability to investigate, influence quantum, preserve evidence, and pursue available recourse before the position hardens. The IUA’s paper suggests that clearer trigger-based notification structures, linked to defined events rather than open-ended promptness obligations, could help close that gap.
Angus Marshall, chair of the IUA Transactional Liability Committee and global head of transaction liability at CFC, said the product had matured from a niche tool into a standard feature of the M&A market, and that continued success would require the market to engage with both the opportunities and the challenges that come with that growth.
“Our paper seeks to highlight the issues that insurers must consider to ensure that cover remains appropriate for the breadth of protection provided and the severity of claims now being paid,” said Tom Hughes, director of underwriting at the IUA.
The Euclid Transactional Global RWI/W&I Claims Study, published in January 2026, reinforced the severity picture, reporting that carriers backing its programme had paid more than US$1 billion in cumulative claims, with more than US$314 million attributable to just 44 payments in the most recent year covered.
