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Representations and Warranties (R&W)/Warranty and Indemnity (W&I) Insurance

R&W/W&I insurance provides buyers with comprehensive protection during company sales, ensuring they are safeguarded against any potential losses that may arise from breaches of representations and warranties.
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*Note: Representations and warranties (R&W) insurance is the term used in the US and Canada; elsewhere, the term warranty and indemnity (W&I) insurance is used.

In today’s mergers and acquisitions landscape, R&W/W&I insurance is becoming increasingly prevalent. This type of insurance provides valuable protection for stakeholders acquiring new assets or businesses, including private equity fund managers, corporate executives, risk managers, and others. By implementing the appropriate contractual safeguards within the underlying purchase agreement or by purchasing R&W insurance, these stakeholders can effectively mitigate some of the uncertainties associated with such transactions.

At Marsh, our team of seasoned transactional risk professionals specialises in helping clients develop R&W/W&I insurance policies. These policies serve as a crucial safeguard against unexpected contractual misrepresentations that may arise during the negotiation phase of corporate M&A transactions. By partnering with us, you can effectively shift a significant portion of your transactional risk to an insurer, reducing your exposure and protecting your balance sheet.

Potential benefits for buyers and sellers

In the ever-evolving global M&A landscape, R&W/W&I insurance has transitioned from a niche product with limited demand to a widely purchased product. The standard procedure in most auction processes is for sellers to provide buyers with comprehensive warranties while disclaiming any residual liability for those warranties.

 Potential benefits for buyers

  • Provides added protection beyond the negotiated indemnity cap and survival periods in a purchase agreement and a provision of recourse when there is no seller indemnity available in the purchase agreement.
  • Protects against collectability/solvency risk of an unsecured indemnity (for example, in financially distressed M&A processes or when there is a large group of sellers).
  • Enhances the ability to submit qualifying bids in competitive auctions where a seller is mandating the use of R&W/W&I insurance.
  • Preserves key relationships (for example, by eliminating the need to pursue claims against management sellers who continue to work for the buyer post-closing).

 Potential benefits for sellers

  • Replaces or backstops negotiated indemnity obligations (key for private equity or venture capital funds to maximise returns for investors and to efficiently wind up funds at the end of their life cycles).
  • Protects minority/passive sellers concerned with joint and several liability.
  • Provides additional comfort for individual or family sellers.
  • Offers a solution for situations where there is a lack of ownership history (for example, restructurings, “loan to own”).