Home / Insurance solutions / M&A insurance: W&I, tax and specific risks
M&A insurance: W&I, tax and specific risks
When a company is bought and sold, the seller states in the contract the condition of the company: accounts, contracts, taxes, litigation. M&A insurance transfers part of the transaction risks to an insurer and makes closing easier.
Key points
When a company is bought and sold, warranty and indemnity (W&I) insurance covers breaches of the seller's representations. It can be supplemented with tax insurance, specific known risks insurance and D&O run-off.
They can be taken out by the buyer or the seller. Without insurance, these risks are covered by holdbacks from the price or guarantees from the seller; with insurance, the buyer has a route to recovery against the insurer without depending on the seller's solvency, and the seller can reduce the holdbacks and guarantees it retains after the sale.
Which policies are involved
W&I (warranty and indemnity)
Covers losses if any of the seller's representations in the sale and purchase agreement prove to be inaccurate.
Tax insurance
Covers an already identified tax contingency with an uncertain outcome: the tax claimed, interest, penalties and defence costs, depending on the policy.
Specific risks
Known risks not covered by W&I, such as litigation, a licence or title to an asset, which may affect the value of the transaction.
D&O run-off
Maintains protection for the directors of the company sold against claims relating to their management before the change of control.
What to check
Scope
Which representations the policy covers and which are excluded.
Due diligence
The insurer bases the cover on the review carried out by the transaction advisers.
Known risks
W&I does not cover them: they are assessed separately, with tax insurance or specific risks insurance.
Limit and retention
The maximum amount and the part of each loss borne by the insured.
Change of control
What happens to the D&O and the company's other policies when it changes hands.
Frequently asked questions
Who takes out W&I insurance?
It is most commonly taken out by the buyer, although the seller can also take it out.
What is the difference between W&I and tax insurance?
W&I covers unknown inaccuracies in the seller's representations. Tax insurance covers a specific tax contingency that has already been identified.
Does W&I cover risks that are already known?
Normally not. Identified risks are dealt with in the contract or with tax insurance or specific risks insurance.
Why take out D&O run-off?
Because after the change of control the D&O policy of the company sold may cease to cover new claims. Run-off maintains the directors' protection for their past management.
Do you also review the insurance of the company being acquired?
Yes. We review its insurance programme as part of the due diligence.
Related insurance
Shall we review your insurance programme?
We'll tell you what is well covered, what isn't and what can be improved. No obligation.