DealLawyers.com Blog

Recent data suggests that the use of Rep & Warranty Insurance may have plateaued, but this Cooley M&A blog says that market development has led to some good news for purchasers of RWI. The blog says R&W policy purchasers in this cooling market have been able to obtain more quotes, and more favorable policy rates and terms. This excerpt says that carriers are also showing interest in deals involving industries and transaction structures that they’ve shied away from in the past:

In an effort to increase their market share, carriers are showing interest in industries that were traditionally challenging to underwrite, like healthcare and financial services. We expect this trend to continue as underwriters continue to gain experience and comfort in these areas, and R&W insurance products become more specialized.

We also are seeing carriers increasingly willing to underwrite alternative transaction structures, such as minority investments, carve out transactions, mergers of equals, restructurings and secondary transactions led by a general partner (GP), and limited partner transfers. The volume for R&W coverage for GP-led secondaries has increased significantly over the past two years, which we expect to continue as the broader economy still faces headwinds and private equity firms seek alternatives to M&A.

The blog acknowledges that as deal activity picks up, policy coverage and exclusion terms may swing back and become more underwriter-favorable, but it speculates that increased carrier capacity, the entry of new players, and increased carrier specialization will continue to result in sustained interest in insuring deals across a wide variety of industries and alternative deal structures.

– John Jenkins