TLDR:
Warranty and Indemnity (W&I) Insurance is the European term for what US practitioners call Representations and Warranties (R&W) Insurance. Both refer to insurance policies covering breaches of representations and warranties given in M&A transactions. The naming difference reflects terminology preferences—UK/European deal documents use “warranty and indemnity” while US documents use “representations and warranties”—but the underlying product is conceptually similar.
Coverage and Structure
W&I policies cover post-closing financial loss arising from breaches of seller warranties in the sale and purchase agreement. Two main forms: buy-side policies (insured = buyer, most common ~95% of policies), sell-side policies (insured = seller, rare). Policy limits typically 10-30% of enterprise value, with retention/deductible of 0.5-1% of enterprise value. Coverage period commonly 7 years for tax warranties and 2-3 years for general warranties. Premiums range from 1-3% of policy limit, with current market rates at the lower end of this range due to increased capacity.
European Market Specifics
W&I insurance is particularly developed in European M&A. Major underwriters include AIG, Liberty, Allianz Global Corporate & Specialty, Tokio Marine HCC, Beazley, and many Lloyd’s syndicates. The market has grown dramatically, expanding from <€500M annual premium in 2010 to >€3B in 2024. London-market W&I underwriters typically lead European deals; New York-market R&W underwriters lead US deals; many providers operate in both markets. The European W&I market has historically been more comfortable with PE-style “no-recourse” deals where the only buyer remedy is the insurance.
Strategic Use in Deals
W&I has become standard in PE auction processes and increasingly common in strategic M&A. Use cases include: PE exit transactions (sellers want clean exits without ongoing indemnification exposure), cross-border deals (where seller indemnification may be hard to enforce), competitive auctions (buyers using W&I to differentiate bids), and deals with retiring founder sellers (avoiding personal exposure post-exit). Standard exclusions include known issues, fundamental warranties (often handled by separate seller indemnity), forward-looking statements, environmental, and pension matters. Sophisticated deal teams negotiate the W&I policy alongside the SPA, with the insurance coverage gap analysis driving certain SPA provisions.