Warranty and Indemnity Insurance

Warranty and Indemnity insurance is designed to protect either a buyer, seller or funder from potential losses arising out of an M&A transaction following it’s completion. Typically, the issues fall within one of the following two areas:

Disposal Exposures

Where sellers are concerned about the extent of liabilities assumed as a result of sale negotiations, Sellers’ Warranty & Indemnity insurance can offset such exposures.

Typical disposal concerns include:

Acquisition Concerns

Purchasers and funders often have concerns about the recoverability of potential losses from warrantors. Common situations where Buyers’ Warranty & Indemnity insurance can be utilised include:

• warrantors being in a weak financial position
• warrantors comprising a group of individuals; or
• warrantors’ cap under the agreement being low and the buyer requires some form of additional comfort

Strategically, sellers may look to get a clean exit by capping their exposures at a low level and then structure a Buyers' policy above their cap to cover the purchasers up to a level that they are comfortable with; this is often utilised in an auction situation.

If you have concerns which arise out of an M&A Transaction or have concerns over a contingent exposure please contact HSBC M&A Risk Advisory Team (see contacts box above)