Warranty & Indemnity Insurance
Insurance covering losses arising from breach of warranties or claims under indemnities in M&A transactions.
Full Definition
Warranty & Indemnity (W&I) Insurance is a specialist insurance product that covers losses arising from breach of warranties (and sometimes indemnities) given in M&A transactions.
Types of W&I policies: 1. Buy-side: Buyer purchases, claims against insurer 2. Sell-side: Seller purchases, insurer pays buyer claims
Buy-side policies (more common):
- Buyer protected if warranty breach discovered
- Claim made directly against insurer
- Preserves relationship with seller/management
- No recourse to seller (subject to fraud carve-out)
Typical terms:
- Premium: 1-3% of coverage limit
- Coverage: 10-30% of enterprise value
- Retention: First loss borne by insured (often £1)
- Policy period: 2-7 years matching warranty periods
- Exclusions: Known matters, forward-looking warranties
Benefits: For sellers:
- Clean exit, no contingent liability
- Distribute proceeds immediately
- Private equity preferred exit structure
For buyers:
- Creditworthy counterparty for claims
- Enhanced warranty package
- Preserves management relationships
UK market: W&I insurance is now standard in UK mid-market and PE transactions. Premiums have decreased significantly as the market has matured.
Related Terms
Warranties
Contractual statements by the seller about the business, breach of which may entitle the buyer to damages.
Indemnities
Contractual promises to compensate the buyer pound-for-pound for specific identified losses or liabilities.
Share Purchase Agreement (SPA)
The definitive legal contract governing the sale and purchase of shares in a company.
Private Equity
Investment funds that acquire equity stakes in private companies, typically seeking value creation and exit within 3-7 years.