A younger and older businessman smiling and shaking hands

Opportunities for Acquirers: Decreased Rates and Increased Capacity in the Representations and Warranties Insurance Market

01/25/2024 Written by: Nick Tuliebitz

The process of procuring Representations and Warranties Insurance (“RWI”) has been significantly impacted by all the same factors that weighed on the M&A market in 2023. For potential acquirers (strategic/corporate and private equity alike), this means that now is a better time than ever to explore RWI coverage options when structuring your deals:

  1. After an extended period of rising RWI insurance rates in recent years, the cost for RWI has significantly decreased over the last 18 months. Previously, rates were 3.5% - $4.5%+ rate on line (or % of premium against the limit). Today, pricing is in the 2.25% - 3.25% range. We have seen recent deals insured at nearly half of what it would’ve cost to insure the same transaction in the frenzy of 2021.
  2. The RWI insurance market has excess underwriting capacity due to the decreased M&A activity. At the peak of M&A activity in 2021, when submitting a typical deal to the RWI market, we would expect to receive ~5-10 terms from insurers. On competitive deals this year, we’ve received upwards of ~15-20 insurer options (depending on the risk). This increased competition amongst carriers allows for negotiating even more insured‑friendly terms for clients than in prior years. There has also been a dramatic difference in the market’s increased willingness to insure smaller deals (e.g., $20-50M), which have historically been less appealing to many RWI insurers.
  3. Since there is excess capacityin the RWI insurance markets, insurers are getting creative on how to win deals. In 2023, we witnessed a trend of carriers lowering their initial and drop-down retentions (deductibles) on RWI policies. The standard initial retention for middle-market deals has been, for many years, 1% of the target’s enterprise value. We currently receive terms with initial retentions ranging from .5% to .75% of the target’s enterprise value. These lower initial retentions mean that the threshold to recovery can be significantly lower in the event of an RWI claim than in years past.

If you are interested in learning more about RWI or current market conditions, please contact our team at assuredpartnersrwi@assuredpartners.com.

M&A Blog Image
Understanding Successor Liability in Asset Purchases: Key Areas to Watch Out For
Mergers & Acquisitions Insurance11/13/2023

Do I need to be concerned about successor liability if I’ve structured my transaction as an asset purchase? Several factors can drive the decision to structure a transaction as a pure asset...

How Is Insurance Due Diligence Different From A Coverage Review?
Mergers & Acquisitions Insurance09/26/2023

It is common practice for insurance brokers to provide a client or prospective client coverage reviews of a target Company’s insurance program. The reviews are beneficial from a risk management...

Specialty Drug Spend: Cost Savings for Self-Funded Portfolio Companies
Mergers & Acquisitions Insurance05/25/2023

Employer-sponsored health plans continue to face increasing costs due to the rising price of medical procedures, prescription drugs, and administrative services in the broader health insurance...