R&W insurance transfers indemnification risk from seller to insurer. It has become standard in mid-market M&A, enabling sellers to achieve cleaner exits and buyers to pursue claims without damaging the post-closing relationship.
What Is R&W Insurance?
R&W insurance transfers the risk of seller representation breaches from the seller to an insurance company. Instead of pursuing the seller for breaches, the buyer claims against the insurance policy.
How R&W Insurance Works
Buy-side policy (most common): Buyer purchases the policy. Claims against insurance, not seller.
Coverage: Unknown breaches of seller representations, losses from post-closing breaches, defense costs
Exclusions: Known breaches (disclosed in data room), forward-looking statements, fraud, certain regulatory matters
Key Policy Terms
- Retention (deductible): Typically 1% of enterprise value, stepping down to 0.5% after 12 months
- Policy limit: Typically 10–20% of enterprise value
- Premium: Typically 2–4% of the policy limit (0.2–0.8% of enterprise value)
- Policy period: 3 years for general reps. 6 years for fundamental reps and tax
When R&W Insurance Makes Sense
- Transactions above $20M enterprise value
- Private equity-backed transactions (PE sellers want clean exits)
- Competitive auction processes
- When seller wants to distribute proceeds immediately post-closing
Impact on Deal Dynamics
- Sellers can negotiate lower escrow amounts (or no escrow)
- Sellers can distribute proceeds to shareholders immediately post-closing
- Buyers have a creditworthy counterparty for indemnification claims
- Post-closing relationships are less adversarial
Key Takeaways
- R&W insurance transfers indemnification risk from seller to insurer.
- Buy-side policies are most common — buyer claims against the policy, not the seller.
- Retention is typically 1% of EV; policy limit is 10–20% of EV; premium is 2–4% of limit.
- R&W insurance enables sellers to achieve cleaner exits with lower escrow requirements.
- Most commonly used in transactions above $20M enterprise value.
Filed under M&A, Partnering & Due Diligence. Working session: Calendly.
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