Representations & Warranties Insurance

Representations and warranties insurance (RWI) is a specialty transactional product that backstops the promises a seller makes in an M&A purchase agreement — the 'reps and warranties' about financial statements, taxes, contracts, litigation, compliance, and the condition of the business. If one of those statements turns out to be inaccurate and the buyer suffers a loss, RWI lets the buyer collect from the insurer rather than clawing money back from the seller through an escrow or lawsuit. This transforms a contentious post-closing indemnity fight into an insurance claim, which is why RWI has become standard in private-company deals.

For a business buyer or seller, RWI matters because it changes deal economics and relationships. Sellers can walk away with more of their proceeds instead of leaving a large indemnity escrow tied up for years, making their bid more attractive. Buyers gain a solvent, deep-pocketed counterparty (the insurer) and can offer sellers a cleaner exit to win competitive auctions. Most policies are buy-side, naming the acquirer as insured, and coordinate with any residual hold-harmless and indemnity provisions that survive closing. The result is often a smoother negotiation because neither side is fighting over a shrinking escrow.

A practical nuance: RWI is not a cure-all. Policies carry a retention (a deductible, typically around 0.5%–1% of deal value that steps down over time), and they exclude known issues surfaced in due diligence, purchase-price adjustments, and certain specialized risks that must be covered by separate products. Pricing usually runs a few percent of the coverage limit as a one-time premium. Underwriting requires the insurer to review the buyer's diligence, so a thin diligence process can lead to broad exclusions. Buyers should map exactly which reps are covered, the survival period, and how the retention erodes — and confirm whether a separate tax-liability or litigation policy is needed for identified risks.