Insurance for transaction-specific exposures

Specialist cover for risks that may sit outside traditional insurance programs.

Transactional risk insurance is a specialist class of insurance used where a transaction contains a defined exposure that the parties want to transfer, in whole or in part, to an insurer. The exact structure depends on the transaction, jurisdiction, due diligence completed, requested limit and the insurer’s appetite.

Cover is individually underwritten and is not a substitute for legal, tax, accounting or transaction advice. Our role is to help clients understand the insurance options available, present the risk to insurers and compare policy terms.

Warranty & Indemnity insurance

Warranty & Indemnity insurance, often referred to as W&I insurance, is commonly used in mergers and acquisitions to provide insurance protection for certain losses arising from breaches of warranties or indemnities given in connection with a sale transaction.

Policies can be structured for either a buyer or seller depending on the transaction. Buyer-side W&I is often used where the buyer wants direct recourse to an insurer for insured warranty breaches, while seller-side structures may be used to protect a seller against certain contractual liabilities that are insured under the policy.

Insurers will generally review the sale agreement, disclosure materials, due diligence reports, deal structure, target business, requested limit and any known issues before offering terms.

Tax liability insurance

Tax liability insurance can be used where a specific tax position or identified tax treatment creates uncertainty that the parties want to insure. The policy is usually designed around a clearly defined tax risk rather than providing broad cover for all tax liabilities.

Underwriting commonly involves a review of the relevant tax analysis, transaction documents and supporting professional advice. Cover remains subject to the agreed insured risk, policy wording, limits, exclusions and conditions.

Title insurance for transactions

Transactional title insurance may be available for certain identified ownership or title-related risks affecting shares, assets, property interests or other transaction rights. The purpose is to insure a defined title exposure where an insurer is prepared to assume that risk.

The scope of cover can vary significantly depending on the asset, jurisdiction and nature of the title issue. Policies are generally tailored to the particular risk rather than written on a broad, standardised basis.

Contingent risk insurance

Contingent risk insurance may be used for specific known uncertainties where the outcome is not yet resolved and the financial consequences can be identified. Examples may include certain litigation-related, regulatory, contractual or other transaction-specific exposures, subject to insurer appetite and underwriting.

These policies are highly bespoke. Insurers will typically require detailed information about the underlying issue, probability of loss, potential financial outcome and supporting professional analysis before deciding whether the risk is insurable.

Environmental risks connected with a transaction

Some transactions involve environmental exposures that may materially affect the value, financing or completion of a deal. Depending on the circumstances, environmental insurance may be available to address specified contamination, remediation or environmental liability exposures.

Environmental cover is generally considered separately from W&I and other transactional risk products, but it can form part of the broader insurance strategy for an acquisition, disposal, development or investment.

Who may use transactional risk insurance?

• Corporate buyers and sellers
• Private equity and investment funds
• Family offices and private investors
• Property and infrastructure investors
• Financial institutions and lenders
• Management teams participating in a transaction
• Businesses undertaking acquisitions, divestments or restructures

Key policy points we review

• Insured party and policy structure
• Policy limit and retention
• Scope of insured warranties or identified risks
• Known matters and exclusions
• Disclosure and due diligence requirements
• Policy period and survival periods
• Claims notification requirements
• Territorial and jurisdictional scope
• Subrogation provisions where relevant
• Interaction with the transaction documents and other insurance

Information insurers commonly request

• Transaction overview and deal structure
• Draft or executed transaction documents
• Due diligence reports and data-room information
• Details of the target business or asset
• Financial information relevant to the insured exposure
• Professional reports or opinions supporting a specific tax, title or contingent risk
• Requested insurance limit and retention
• Known issues identified during the transaction process
• Expected signing and completion timetable

Why early engagement matters

Transactional risk insurance is most effective when insurance discussions begin early enough for insurers to review the transaction, ask underwriting questions and work through the proposed scope of cover. Leaving insurance until the final stages can reduce the number of available options or limit the time available to negotiate policy terms.

Insurance advice only

Mercantile Insurance Brokers provides general and personal insurance advice within the scope of our authorisations. We do not provide legal, tax, accounting, valuation or transaction-structuring advice. Clients should obtain advice from appropriately qualified professional advisers on those matters. All cover is subject to insurer approval and the final policy wording, schedule, limits, conditions and exclusions.

Frequently asked questions

What is transactional risk insurance?

Transactional risk insurance is a group of specialist insurance products designed to transfer defined financial risks associated with mergers, acquisitions, investments and other corporate transactions to an insurer.

What is W&I insurance?

Warranty & Indemnity insurance is designed to cover certain losses arising from insured breaches of warranties or indemnities given in connection with a transaction, subject to the policy terms and exclusions.

Can transactional risk insurance cover a known tax issue?

Potentially. Tax liability insurance can sometimes be structured around a specific identified tax risk, provided an insurer is satisfied with the underwriting information and is prepared to insure the exposure.

Can known risks be insured?

Some specialist transactional products are specifically designed for identified risks, such as certain tax, title or contingent exposures. Whether cover is available depends on the nature of the risk, supporting analysis and insurer appetite.

When should insurance be considered in an M&A process?

It is generally useful to consider insurance early in the transaction process so insurers have time to review due diligence, transaction documents and the requested scope of cover before signing or completion.