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Representation and Warranty Insurance


Merger and acquisition transactions generally require the seller to indemnify the buyer for breaches of the representations and warranties that are made in the purchase and sale agreement. Depending on the parties involved and the nature of the representations and warranties, the seller may be required to escrow a material percentage of the indemnification requirement. This requires the seller to maintain substantial illiquid capital following an exit. If the seller is a private equity investor, it may limit their ability to wind down partnerships, formed for investment purposes, and may further limit their ability to return funds to investors.

From the buyer’s perspective, an uninsured indemnity provides only limited comfort, as there is no guarantee that they will be able to collect losses if a breach occurs. In many acquisitions, the representations and warranties do not survive after closing because there is no one left to provide indemnity.


To address these obligations, Marsh has worked with several insurers to develop a risk transfer insurance policy which can reduce or replace the indemnification and escrow requirements created by the seller’s representation and warranties section of a purchase and sale agreement. The policy will pay excess of a retention, which is often the basket aggregate outlined in the purchase and sale agreement.

Key Client Concerns

How long does it take to get a quote?

It depends on the complexity of the deal, but an indication should be made within a week. A firm quote is available ten days after the initial indication.

Is a draft policy available?

Each policy is manuscripted and requires a confidentiality agreement. Therefore, we cannot provide a draft policy without a confidentiality agreement in connection with a particular transaction.

What does it cost?

The premium will depend on the risk of the transaction, however as a general rule, the premiums will range from 3 percent to 10 percent of the policy limit.

What is a typical retention?

The retention is determined by the underwriter and the insured. Most transactions utilize the “basket aggregate” as the retention.

Can the underwriter subrogate against the purchaser or their advisers?

The short answer is yes. However, the underwriter can only subrogate against the purchaser for intentional misrepresentations. In addition, the underwriters use their own lawyers for due diligence, so it is difficult for the underwriters to claim that they relied solely on the purchaser’s adviser’s analysis. This makes it difficult to subrogate in the absence of intentional misrepresentations.

Required Information

  • Copy of the purchase and sale agreement (draft or final).
  • Financials of the buyer and seller.
  • Copy of the due diligence information requested and received.
  • Summary of the transaction, including purpose, limits, parties involved, advisers, and timing.

The Process

  • Submission received.
  • Sent to appropriate underwriters and their counsel.
  • Initial indication from underwriters and their counsel. Indication includes pricing parameters and required deposit premium.
  • Final term sheets are received.