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Transactional Insurance Products
Warranty and Indemnity Insurance
What is it?
Warranty & Indemnity Insurance ('W&I') helps protect a seller or buyer from financial loss resulting from inaccuracies in the representations and warranties provided by the seller as part of an acquisition or sale of a company or a business. Since the transaction documentation and process will vary depending upon the nature of a particular transaction, each W&I policy is tailored to address the unique requirements of each transaction.
Why do you need it?
The underlying loss typically covered by the W&I policy is the loss resulting from an inaccuracy of the warranties and indemnities relating to the acquired company or the acquired business. In most transactions, one of the most heavily negotiated sections of the acquisition agreement is the section setting forth the warranties and indemnities relating to the acquired company or the acquired business. These warranties provide critical information to the buyer about the company or business it is acquiring and lay the groundwork for indemnification in the event the company or the business is not what the seller purported it to be. Because these warranties have the effect of allocating a great deal of risk in a transaction, most applicants for W&I insurance request coverage for all or some of these warranties and indemnities.
Who needs it?
Either a seller or buyer of a business can be the named insured under a W&I policy and can also be extended to cover other parties, including a 'newco', a SPV or a guarantor. Determining whether a 'Seller-side' policy or a 'Buyer-side' policy is most appropriate for a particular transaction is ' a function of what the parties wish to achieve from the insurance (e.g., what is the 'driver' for the insurance?). Accordingly, we recommend that in conjunction with your advisers, you first consider how the insurance can be used to enhance the transaction. This should also include a consultation with AIG's Mergers and Acquisitions Insurance Group or your insurance broker at an early stage in the transaction so that an informed decision may be made regarding the appropriate form of cover.
Why use AIG Australia?
Since early 2000 we have been offering specialised W&I policies for Australian and New Zealand companies involved in mergers, acquisitions and divestments. Our insurance policies are issued by member companies of American International Group, Inc. (AIG). The Mergers & Acquisitions Insurance Group of AIG is recognised by M&A practitioners globally as innovators in the field of applying insurance capital to enhance and facilitate transactions. AIG is a world leader in insurance and financial services and AIG's ratings are among the highest of any insurance and financial services organisation in the world a vital element in providing insurance for complex, long-tail corporate transactions.
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