HWF is a specialist transactional risk insurance brokerage with extensive experience from providing advisory services on over 5,800 transactions and structuring over 1,600 bespoke transactional risk insurance policies. Recognised as a market leader, our expert team consists of former M&A lawyers, tax advisors and transactional risk underwriters. With offices in London, New York, Dubai, Frankfurt, Milan, Munich, Paris and Warsaw, we leverage our international presence in the transactional risk insurance marketplace to provide our clients with unparalleled insight and individualised attention on each transaction.
A W&I policy is a strategic insurance product that covers losses arising from breaches of the warranties or claims under the tax covenant for unknown matters given by the seller(s) to the buyer under the sale and purchase agreement (“SPA”).
Subject to the terms of the W&I policy (including the relevant limitations), the insurer will indemnify the insured (in most cases, the buyer) for the losses suffered as a consequence of any such breach or claim, provided that the insured had no actual knowledge at signing/
closing (as applicable) of the relevant breach or circumstances giving rise to the claim.
W&I policies can be used for M&A transactions of different sizes/value (starting generally from GBP 1 million up to GBP 10 billion+). Some insurers may be able to insure deals of lower value – however, please note that insurers will apply their minimum premium in these circumstances. Broadly speaking, insurers are sector agnostic.
Either the seller(s) or the buyer can take out a W&I policy.
There are various factors that have an impact on pricing of a W&I policy including the sector and jurisdictions in which the target operates, the value of the transaction and the required policy limit.
The allocation of the insurance costs is generally based on the parties’ commercial negotiations. Insurance costs can be borne by the buyer or the sellers and this can be reflected in the mechanisms and logics of determination of the transaction value/consideration.
The standard W&I policy exclusions are:
- known matters – please see our section on Contingent insurance below to see how this can be covered by a Contingent insurance policy;
- forward-looking statements;
- asbestos and pollution liability (to the extent relevant);
- transfer pricing/secondary tax/loss of tax assets;
- losses related to sanctioned people or countries,
- criminal fines or penalties or punitive damages; and
- leakage and/or price adjustment mechanisms.
Yes, it is possible to insure some known risks, which have a low likelihood of materialising but a significant impact. Please see our sections on Tax and Contingent sections below for examples of types of risks that can be insured.
Tax insurance provides cover for specific identified tax risks, by transferring the risk of loss arising from a tax authority challenge to an insurer. Tax insurance is commonly used to address known risks identified as part of M&A processes. However, it is increasingly being used to mitigate risks arising in the lifecycle of investment structures, release balance sheet provisions and provide operational certainty.
An extensive range of risks can be covered, including:
- The application of withholding taxes
- The potential for a taxable gain to arise, including the application of participation exemptions
- Equity/debt classification
- Whether VAT is payable in respect of goods or services
- Employment-related securities and share option concerns
- The applicability of transfer taxes
- The applicability of anti-avoidance tests
- The ongoing availability of losses and other tax reliefs
In a similar way to specific tax risk insurance, contingent risk insurance covers risks that are known – such as pending or issued litigation, a potential or actual regulatory issue or challenges arising from a reorganisation or restructuring.
Please contact info@hwfpartners.com or your usual HWF contact.
