W&I insurers respond positively and competitively to high M&A activity levels

Updated: Jun 23, 2021

The current pandemic situation has unfortunately caused a great deal of economic dislocation in the UK economy, particularly in the retail and leisure sectors. It has however, also created an environment where the levels of merger and acquisition activity have been running high, particularly in the world of Private Equity, with both buyers and sellers seeking advantageous opportunities.

This climate has also been massively assisted by a responsive and competitive insurance market that specialises in underwriting Warranty and Indemnity insurance. In its simplest form the insurance seeks to insure those warranties given by the vendors in the share purchase agreement (SPA) that governs the sale of one company to another. The benefits of the insurance placement to either side in a transaction are that deal value can be maintained, the requirements for funds being tied up in escrow are removed, known liabilities may be insured and that deal uncertainty can be managed.

With over twenty underwriters providing such cover there is currently a very healthy tension in the insurance market with premium rates at very stable or falling and, more importantly, coverage positions becoming broader than ever. Examples of this include:

· Coverage availability on an indemnity basis

· The provision of knowledge scrapes

· Materiality scrapes

· Extended survival periods

These innovations can ensure that any resultant policy is broader than the SPA thus truly enhancing deal viability.

Further innovation can be seen with the provision of insurance coverage for certain known issues which, as these are traditionally disclosed or form the basis of an indemnity, can create pinch points to deal closure. At PIB we have successfully negotiated insurance coverage for certain known matters on a transaction which removed buyer nervousness on that particular point and thus allowed the deal to close.

Furthermore, the rapidly expanding tax liability market is also taking proactive coverage positions and again, can facilitate deals being completed. A good example of this is where clients are now seeking insurance solutions as an alternative to tax clearances/rulings from the relevant authorities. The pandemic has meant that any tax authority response to requests for clearances or rulings are now very slow and the availability of insurance solutions has again enabled the M&A deal flow to remain strong.

At PIB Insurance Brokers we have worked with both lawyers, their clients and insurers on a tripartite basis to secure the best possible outcomes for transactions where insurance is not only desirable but sometimes a necessity. Our team is happy to work to the rhythm of the transaction and often works through the night to ensure that coverage is placed in appropriate form as a deal closes.

To find out more about the range of services PIB Group can provide solicitors please view our proposition document here.

David Walters

Head of Financial Lines

PIB Insurance Brokers