Representation and Warranties Insurance

What is Representation and Warranties Insurance?
​Reps & Warranties Insurance offers protection against potential financial loss arising from the breach of representations and warranties, made by the seller to the buyer, in a merger or acquisition transaction.
 
Benefits of Coverage – to Buyer and Seller
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  • Can assist a transaction to take place that would otherwise fail due to the potential risks to the parties being too much to be addressed in the sale price or via amounts placed in escrow
  • Having an insurer assume potential, complex risks may shorten the negotiation process
  • Allows the buyer to deal with an insurer rather than the seller, when a claim against the indemnity is necessary
  • Allows seller to provide financial guarantee acceptable to the buyer, that without the insurance, may otherwise not be possible (e.g. in a retirement sale or bankruptcy sale)
  • May enable buyer to secure financing for a transaction with better terms, especially when transaction is highly leveraged
  • May enable buyer to offer a more attractive price, since certain risks have been transferred to an insurer
  • An insured transaction may be more attractive to the seller, as it can reduce their indemnity, escrow or similar commitments
  • Reduces or eliminates the possibility that the seller will be required to return sale proceeds to the buyer
  • Can substantially reduce or eliminate sale proceeds placed in escrow, increasing the amount of sale proceeds the seller receives at closing
 
Underwriting Process
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Items required for a non-binding indication:
  • Copy of Sale and Purchase Agreement with all Schedules and Exhibits
  • Description of target company’s business and operations, background information of principal(s), and list of shareholders and percentage of shares held
  • Copy of offering memorandum to potential bidders, if applicable
  • Names and contact information of any outside consultants, financial advisors or valuation experts
  • Audited financial statements of the target company
Underwriters will require an outside legal report and financial analysis to be paid for by the client. The cost averages between $25,000 and $50,000, and some insurers will offset the cost against the premium, while others will not.
 
Underwriters will require a conference call with the client, which typically takes 45 to 90 minutes. The whole process takes approximately two to three weeks.
(818) 322-4744​
17425 Chatsworth Street
Suite 204
Granada Hills, CA 91344​
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