March 27, 2018

R&W Insurance: Market Continues to Mature

This Wachtell memo highlights the continuing maturation of the R&W insurance market and its growing role in the deal ecosystem.  While only a few hundred policies were written annually as recently as 5 years ago, the memo estimates that more than 1,500 were written last year. The memo lays out a number of reasons underlying the growth in R&W insurance. These include:

– More than twenty insurance carriers are now writing R&W insurance. At least ten of these carriers are capable of writing primary policies, up from just a handful of carriers even five years ago.

– The increase in insurance markets writing R&W insurance has led to a competitive marketplace for both policy pricing and terms. Policy terms have become somewhat more standardized across the industry.

– The market has evolved beyond private equity firms, and public companies are using it in their own acquisitions & dispositions. R&W insurance has even been purchased in public company deals, although this remains a less common approach.

– Carriers have become more receptive to writing policies that don’t require the seller to have some “skin in the game” in the form of some indemnity obligation.

– As the use of policies has increased & terms have become standardized, the time necessary to put a policy in place has decreased.

– As the market has grown, the number of claims made – and paid – has increased, and the number of brokers placing R&W insurance has grown.

The memo also says that increasing underwriter familiarity with M&A transactions has also contributed to the growth of related insurance products, such as coverage for “regulatory approval risks, break-up fees & certain tax-related risks,” and that continued expansion in these areas is anticipated.

John Jenkins