Warranty & indemnity insurance
The Warranty & Indemnity Insurance (short W & I insurance , also guarantee insurance ) is insurance in the field of M & A -Transaktionsversicherungen that, like other insurance companies in this segment, the securing of guarantees, warranties and indemnities from the purchase contract is used. It has its origins in the Anglo-American insurance market, but is also becoming increasingly important in Germany.
history
Warranty & Indemnity insurance has existed since the 1980s. At first it was used exclusively by sellers as a protective measure against guarantee claims made by them against potential buyers. In the 1990s, the range of W&I insurance products expanded and more and more tailor-made solutions could be offered. Since then, the most important development of W&I insurance has been its entry into the real estate and corporate transaction sector. While the insurance used to be used exclusively for private equity transactions, in 2015 almost half of all W&I insurance was taken out in the real estate or corporate transaction sectors.
function
The function of a W&I insurance is essentially to protect the buyer or seller by transferring their respective risks from their own balance sheet to the balance sheet of an insurer or, in the case of large transactions, to the balance sheet of several insurers. The distribution of risk is an intensely negotiated point, especially in large M&A transactions, with the corresponding potential for the business to fail. This potential can be contained by bringing in a W&I insurance and the associated transfer of risks to an insurer. The buyer can compensate for any weakness in equity with the help of the financial strength of an insurer and thus improve his position in the bidding process. For the seller, in turn, an upgrade of his solvency by the insurer can lead to an increase in the sales price. Furthermore, a so-called "clean exit" is made possible for him, along with higher liquidity. For both parties, W&I insurance is more cost-effective to set up than reserves in the form of trust accounts or bank guarantees.
Weak points
Weaknesses of a W&I insurance can be seen in the required minimum transaction size. Depending on the provider, the insurance is only offered from a minimum insurance premium of 75,000–95,000 euros, so that a transaction volume above 5 million euros is necessary for the W&I insurance to pay off economically.
In addition, not all risks can be hedged. Known risks or guarantees that relate to the future, for example, cannot be covered by a W&I insurance policy, just as agreed contractual penalties or default interest.
Individual evidence
- ↑ Warranty and Indemnity Insurance - Is the Silver Bullet Beginning to Tarnish? - Latham.London - Latham & Watkins (English)
- ↑ Warranty & Indemnity Insurance - a new home in the legal market 04/18/2017 (English)
- ↑ W&I Versicherung: Areas of application · Deal breakers · Procedure in M&A deals - MRHT
- ↑ W&I insurance companies let M&A transactions fly - Oppenhoff & Partner
- ↑ Warranty & Indemnity Insurance for Real Estate - LUTHER & MRHT