Representations and warranties insurance (RWI)
Policy covering losses from the inaccuracy of representations and warranties given in a company acquisition.
Representations and warranties insurance, often referred to as RWI or W&I, covers financial losses resulting from the inaccuracy of the representations and warranties given by the seller in a merger or acquisition. It transfers to an insurer the risk that a warranty proves false after the sale, for example a hidden dispute, an undisclosed tax liability or a non-compliance. Bought by the buyer or the seller, it facilitates the transaction by reducing the need for escrows and allowing the seller a clean exit. Now a common private equity instrument, it falls under transactional risk underwriting, which requires a fine legal analysis of the contract and the underlying due diligence. For the insurer, the challenge is to assess an idiosyncratic risk specific to each deal, with no law of large numbers, bringing this line closer to case-by-case underwriting than to statistical pricing.
Textbook case: a buyer discovering an undisclosed tax liability after closing can be indemnified by its warranties policy rather than litigating against the seller.
RWI, W&I insurance, warranty and indemnity, M&A insurance
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.