Warranty & Indemnity Insurance (W&I)
Warranty & Indemnity Insurance (W&I)
W&I insurance, also known as representations and warranty insurance in the US, can be purchased by a Buyer or a Seller in an M&A transaction to protect against financial loss arising from an unknown or undisclosed matter that is covered by the warranties or tax indemnity agreed between the parties in the transaction documents. The policy protects an insured against financial loss (including defense costs) resulting from breaches of such warranties and indemnities.
The product is often employed to effectively bridge a gap between the deal parties’ positions; either to safeguard against a loss, enable a seller to have a clean exit from the deal or to provide a strategic tool for buyers to gain a competitive edge against other bidders in an auction sale.
The W&I underwriting team is experienced and has extensive knowledge of the market across multiple jurisdictions. VALE’s disciplined and long-term underwriting approach means they are regarded as a leading market within the industry.
What is Warranty & Indemnity Insurance?
W&I insurance enables parties to an M&A transaction to pro-actively manage transaction risks. Warranties are contractual statements in a Share Purchase Agreement (“SPA”) given by a seller regarding the condition of a Target business at one fixed point in time. The buyer enters into the SPA on the basis that such warranties are true and accurate.
In a typical transaction without W&I insurance, where these warranties turn out to be untrue or inaccurate and, as a result, the buyer suffers financial loss, the seller may be liable to pay damages as compensation for breaches of warranties. However, on a deal with a W&I policy in place, the risk is instead transferred to VALE who insures the buyer (or, less frequently, the seller) for loss resulting from such breach of warranties or a claim under a tax indemnity.
Strategic Benefits of W&I:
- Enables a prospective buyer to distinguish their bid in a competitive auction process by negotiating more limited (or nil) recourse from the sellers by supplementing the contractual position with W&I insurance;
- Enables a buyer to supplement protection for breaches of warranties both in terms of value, duration of warranties and certainty of payment;
- Allows a buyer to protect relationships with sellers where the management team is rolling over or where the sellers may be commercial business partners post-transaction.
Hayley Tennant is a Director and Head of W&I. Hayley was previously a Partner in the M&A team at Marsh-JLT Specialty where she specialised in structuring bespoke W&I and Tax liability insurance solutions for clients involved in M&A transactions. Prior to joining JLT in 2018, Hayley was a Vice President with Allied World Assurance Company where she spent 10 years underwriting transactional risk products with a global remit but with a focus on the Nordics, the UK and Central Europe. Hayley holds a degree in Law with French Law from the University of Birmingham and practiced as a corporate law solicitor with Norton Rose Fulbright before moving into the insurance industry.
Holly Edwards is a Director, W&I. Holly joined VALE Europe from Beazley where she was M&A Counsel and underwriter. There she specialized in the underwriting of W&I risks with a global remit (including US and Asia Pacific risks) but with a focus on Europe. Before joining Beazley, Holly underwrote transactional liability risks for both AIG and AWAC. Holly practiced M&A and corporate law with Ropes & Gray (New York) and Ashurst (Australia) before moving into the insurance space. Holly holds a Bachelor of Laws with Honours from Monash University and a Bachelor of Arts from the University of Melbourne (both in Australia).
Kevin Costello is a Director, W&I. Kevin joined the W&I market in 2017 after a successful career within Civil Service and law and led Ambridge’s European Transactional Risks business based in Frankfurt, Germany. Kevin holds a degree in French and German from the University of Oxford and practised law as a barrister with Travers Smith, before moving into the insurance industry.