Representations & Warranties - 101
With ever increasing M&A activity across many sectors, there is an insurance coverage that can take some of the risk associated with acquiring a target company. Inaccuracies in representations and warranties made by the seller or the target company in connection with a merger or acquisition can result in costly liabilities.
Buyers can be left without the ability to recover losses and sellers can be forced to hand back a portion of the purchase price.
Representations and warranties insurance helps protect both buyers and sellers involved in these transactions from financial loss in the event inaccuracies in representations and warranties are made. By purchasing representation and warranties insurance, buyers can distinguish a bid, sellers can reduce indemnity obligations, and both parties can close deals with ease and confidence.
Typically these polices are available for transactions with values from $20 million to $1 billion. The policy period can match the survival period of the representations and warranties and can cover the complete set of representations and warranties made by a seller; including environmental and intellectual property matters.
Coverage is available with limits of up to $50 million for any one transaction and premiums range from 2-5% of the limit of liability purchased, while deductibles are typically between 1-3% of the transaction value.
There are many benefits of the coverage to both buyer and seller as it can go a long way to protecting both parties' interests.
Questions? Reach out to one of our Corporate Risk Advisors today at