Representations and Warranties Insurance (RWI)
Transactional insurance that covers losses from breaches of seller representations and warranties in M&A transactions.
What It Is
Representations and Warranties Insurance (RWI), also known as R&W insurance or warranty and indemnity insurance, is a transactional liability product used in mergers and acquisitions. The policy covers losses arising from breaches of the seller's representations and warranties in the purchase agreement.
RWI can be purchased by either the buyer (buyer-side policy) or the seller (seller-side policy), though buyer-side policies are far more common. A buyer-side RWI policy allows the buyer to recover losses from the insurer rather than pursuing the seller for indemnification claims.
The coverage addresses breaches discovered after closing related to financial statements, tax compliance, material contracts, litigation, employee matters, intellectual property, and other representations made in the purchase agreement.
Why It Matters for Brokers
RWI has become a standard feature in middle-market M&A transactions because it facilitates deal completion by reducing the seller's post-closing indemnification obligation and giving buyers confidence in their protection. Brokers who understand RWI can participate in a high-value, growing transactional insurance market. For brokerages that serve private equity firms, investment banks, or M&A-active companies, RWI placement capabilities are a significant differentiator.
Real-World Example
A private equity firm acquires a $75M manufacturing company. The purchase agreement contains representations about the accuracy of financial statements, compliance with environmental regulations, and the status of material contracts. The buyer purchases a $10M RWI policy with a $750,000 retention. Six months post-closing, the buyer discovers a $2.5M undisclosed environmental liability. The RWI policy covers the $2.5M claim minus the $750,000 retention, avoiding a contentious indemnification dispute with the seller.
Common Mistakes
- 1Not engaging an RWI broker early enough in the transaction — most carriers require submission before the purchase agreement is finalized.
- 2Assuming RWI covers all representations without reviewing the specific exclusions and coverage limitations in the policy.
- 3Not coordinating RWI coverage with the purchase agreement's indemnification provisions, creating gaps between contractual and insurance coverage.
How brokerageaudit.com Handles This
BrokerageAudit supports transactional insurance placements by tracking deal timelines, carrier submission requirements, and policy-to-purchase-agreement coverage mapping.