DealLawyers.com Blog

I recently blogged about the challenges of obtaining RWI coverage for non-standard deals in the current environment.  This Goodwin memo provides some additional insight into current market terms for RWI policies. Here’s an excerpt:

Pricing. The premium for R&W insurance has increased significantly in the last 12 months. While the “rate on line” (premium divided by the policy limit) has been declining in the last few years (reaching as low as 2.5% and infrequently exceeding 3.5%), a more common range initially quoted recently has been around 3-4.5% depending on the industry, and sometimes exceeding 5%. Carriers cite their claims experience and deal volume for reasons for the pricing increase.

Retention. The retention for the policy has not changed. A typical retention is 1% of the enterprise value (EV) initially, dropping down to 0.5% (usually on the first anniversary of the closing). As before, the initial retention for larger deals (close to or above $500 million) is often 0.75% of the EV. For smaller deals, minimum retention may apply (around $200,000, depending on the insurer and the type of transaction).

Term Sheets and Policies. The number and types of proposed coverage limitations in quotes have become more extensive and technical, including comments on the representations, interplay with other insurance, and cap on multiple damages (for some insurers). This trend has accentuated the need for experienced R&W insurance coverage counsel to be involved early and negotiate the terms at the quote stage because it would become difficult to do so later in the process.

Despite the more challenging market conditions, the blog says that claims continue to be processed and paid, although large claims exceeding the retention are relatively infrequent, and that only a handful of R&W insurance claims have resulted in litigation so far.

– John Jenkins