M&A Faces New Challenges Amid Surge in RWI Claims
M&A faces new challenges with an 18% rise in RWI claims, reshaping strategies.
Why it matters: As RWI claims rise, GCs need updated strategies to manage risk and protect deals effectively, ensuring compliance with evolving insurance requirements.
- RWI claims reached 18%, notably before 2023.
- 63% of claims focus on compliance, tax, and financials.
- RWI premiums now stand at 2.5% of policy limits.
- More than 50% of claims face delays over six months.
The M&A landscape is undergoing a notable transformation as increasing representation and warranty insurance (RWI) claims impact deal strategies. Recent data indicates RWI claims have risen to 18% of policies, notably reaching peaks before 2023. This shift requires general counsels (GCs) to update their risk management approaches to safeguard transactions effectively.
More than 63% of these claims focus on compliance with laws, tax issues, and financial statements—a trend urging M&A stakeholders to prioritize these areas in due diligence processes. As revealed by Fasken, understanding these focal points is crucial for maintaining deal integrity and protecting company interests.
Additionally, the RWI marketplace is becoming more competitive, with premiums now averaging 2.5% of policy limits. This cost reduction, noted by AssuredPartners, allows even smaller transactions, some as low as $25 million, to access RWI coverage.
However, claims processing remains a critical bottleneck. According to the American Bar Association (ABA), insurers take longer than six months in over 50% of cases to provide initial claims positions, complicating timelines. This delay highlights the necessity for robust risk mitigation and pre-emptive conflict resolution strategies.
Emerging challenges in Environmental, Social, and Governance (ESG) compliance further complicate transactions. Winston & Strawn's insights, which reveal that nearly 25% of private equity deals include RWI policies, underline the sector's shift towards comprehensive risk re-evaluation.
By the numbers:
- 18% — Percentage of RWI claims before 2023.
- 63% — RWI claims focus on compliance, tax, and financial areas.
- 2.5% — Current RWI premium as a percentage of policy limits.
Yes, but: While claims are rising, reduced premiums are increasing access to RWI, potentially balancing the risk.
What's next: Expect detailed guidelines on handling RWI claims in upcoming insurance reports.