Fast facts about Representations and Warranties Insurance including, typical premiums, deductibles, transaction sizes, coverage amounts, common exclusions, timing to gain a policy and more.
- RWI allocates certain financial risks to the insurer for losses resulting from breaches of the sellers’ representations and warranties in the acquisition agreement.
- When the buyer is the insured (buy-side RWI policy), RWI can replace or reduce the need for a holdback or escrow, or it can supplement the protection provided by a holdback or escrow.
- When the sellers are the insured (sell-side RWI policy), they remain liable under the M&A agreement and RWI compensates them for covered losses within the holdback or escrow layer, or for clawback risk with respect to covered losses the buyer claims against sellers outside a holdback or escrow layer.
- Over 2,000 RWI policies bound annually among 20+ RWI providers.
- RWI premium typically ranges from ~3%–4% of the insured amount (downward trend over the last 1–2 years is resulting in many opportunities pricing below 3%).
- RWI deductible typically ranges from ~1%–2% of the transaction value (downward trend over the last 1–2 years), often dropping to a lower level 12–18 months after closing.
- Underlying transaction sizes typically range from ~$30M to well over $1B, although larger and smaller transactions may qualify.
- Available coverage amounts typically range from ~$4M–$40M per policy, with certain insurers able to provide $40M+ per policy and with smaller limits sometimes available for smaller transactions; for larger transactions, insurance towers (similar to lending syndicates) can provide several hundred million dollars of RWI coverage.
- Common RWI industry exclusions typically include known or expected breaches, purchase price adjustments, breaches of covenants, predictions or forward-looking statements, unfunded/underfunded pension plans, net operating loss (NOLs) and, for sell-side RWI policies, seller fraud; deal-specific exclusions and “deemed” wording may also apply.
- Following submission of preliminary underwriting materials and receipt of non-binding quotes, which generally takes 2–4 business days, the formal underwriting process generally takes 1–2 weeks and requires payment to the RWI insurer of a non-refundable underwriting fee (typically ~$25,000–$50,000, depending on transaction size, complexity level, etc.), with tighter time-frames sometimes feasible.
Executive Director, Indemnification Solutions
Transactional risk insurance products or services may not be available in all states, and coverage is subject to actual policy language. Non-insurance products and services may be provided by affiliated companies or unaffiliated third parties. Insurance products placed by Acquiom Insurance LLC, an affiliate of SRS Acquiom Inc.