Insurance glossary · Deals and private equity
representations and warranties insurance.
Also called RWI, R&W insurance.
Reps and warranties insurance covers a buyer’s loss when a seller’s statements in the purchase agreement turn out to be wrong, so the claim goes to an insurer instead of the seller.
What does reps and warranties insurance cover?
Losses a buyer suffers when statements the seller made in the purchase agreement, like the accuracy of the financials, tax compliance or the absence of undisclosed lawsuits, turn out to be untrue and weren’t known to the deal team before closing. The buyer claims against the insurer instead of the seller.
Who buys reps and warranties insurance, the buyer or the seller?
Usually the buyer, as a buy-side policy, because the buyer controls the claim. Who pays the premium is negotiated; it’s often split or built into the price. Seller-side policies exist but are less common.
Why do deals use it?
It lets sellers walk away with more of the proceeds and less held back in escrow, lets buyers recover from a reliable insurer instead of chasing former owners who may now work for them, and makes bids more competitive in auctions.
What does reps and warranties insurance not cover?
Anything the deal team knew about before closing, issues found in diligence, forward-looking statements and projections, purchase price adjustments, and specific risks the underwriter excludes after reviewing diligence, often things like known environmental issues, underfunded pensions or certain tax matters.
How is the policy underwritten?
The insurer reviews the purchase agreement and the buyer’s diligence reports, holds an underwriting call with the deal team, and then issues the policy with exclusions tied to what it found. Thin or narrow diligence leads to broader exclusions.
What is the retention on a reps and warranties policy?
It’s the amount of loss the insured absorbs before the policy pays, usually a percentage of enterprise value, and it often drops after the first year. Sellers sometimes backstop part of it through a small escrow.
How long does coverage last?
Typically a few years for general representations and longer for fundamental representations and taxes. The policy period is set in the policy, not the purchase agreement.
Does reps and warranties insurance work for smaller deals?
Increasingly, yes. Minimum premiums have come down, and lower middle market and search fund deals now use it. Whether it’s worth it depends on deal size, how much indemnity the seller would otherwise give, and the quality of diligence.
by type of buyer.
- Private equity sponsorsStandard on larger acquisitions and add-ons, often negotiated alongside a limited seller indemnity.
- Independent sponsorsCan make a deal more competitive against funded buyers by shrinking the seller’s escrow.
- Search fundsMore available on smaller acquisitions than it used to be, and useful when sellers stay on as employees.
- Family officesUseful on direct acquisitions where the office wants a clean exit for sellers and a reliable source of recovery.
where you’ll see it.
- Purchase agreementsA reduced or eliminated seller indemnity and a provision that the buyer’s recourse is the policy.
- Letters of intent“Buyer intends to obtain a buy-side representations and warranties insurance policy.”
- Closing documentsA binder issued at signing and the final policy at closing.
placed with the deal timeline in mind.
Riza runs the reps and warranties process alongside diligence: market submissions, quote comparison, underwriting calls and exclusions negotiated against what the diligence actually found.
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Coverage it touches: Reps and warranties · Insurance due diligence