Representations and Warranties Insurance, also known as RWI, provides coverage for financial losses resulting from unknown breaches of representations and warranties made by the target company or the seller in an acquisition agreement. In the context of an M&A transaction, RWI transfers the risk of financial loss resulting from a breach of a representation or warranty to our panel of highly-rated insurers, reducing or eliminating the need for the seller to hold back a portion of the purchase price in escrow. By limiting post-sale exposure to potential claims, this insurance plays a crucial role in mitigating transactional risks and enhancing the competitiveness of the buyer’s bid to acquire the target company.
RWI offers a number of benefits, including:
- Distinguishes buyer’s bid in an auction process;
- Comprehensive coverage for an unknown breach of representations and warranties and longer period of protection (3 years for general reps/6 years for fundamental reps and tax) than sellers typically offer in a traditional purchase agreement;
- Recoup claims from highly rated insurers represented by professional claims handlers rather than from seller or an escrow account; and
- When sellers roll over a portion of their investment or management stays on with the company post-closing, RWI reduces potential friction in management relationships where a post-closing claim may implicate the pre-closing conduct of the sellers or management.
Subject to standard terms, conditions and exclusions and our underwriting, we can provide fulsome coverage for breaches of market-standard representations and warranties (e.g., financial statements, intellectual property and compliance with law) as well as a pre-closing tax indemnity.
Our underwriting team has collectively underwritten thousands of transactions involving strategic and private equity buyers acquiring companies spanning a wide variety of industry classes. This experience, combined with an efficient and commercial approach to analyzing deal-related risks, allows us to provide the broadest possible coverage for unknown risks.