Over the past few years, we have seen representation and warranty insurance (RWI) gain a larger foothold in middle and lower-middle market M&A transactions.
With more insurers entering the RWI market and growing acceptance of the product, buyers of RWI can now expect to see premiums of less than 3% of coverage limits and deductibles of 1% or less of deal value. These favorable economics, coupled with a track record of insurers actually paying RWI claims, undoubtedly account for the acceptance and growth of RWI we have seen firsthand.
For sellers, RWI can greatly curtail or even completely eliminate exposure for ordinary representation and warranty claims following closing. While at the same time, buyers can look to a credit worthy insurance company for recovery, and, due to the presence of RWI, both parties can benefit from less contentious negotiations of representations and warranties and certain indemnification provisions.
This post was written by George Thomas.
