Overview of our solutions
Representations and warranties insurance (RWI)
RWI provides protection from unknown breaches of target and seller representations and warranties in a purchase agreement.
Tax insurance
Tax insurance offers coverage for known tax risks or an uncertain tax position that is challenged by a tax authority and is not otherwise covered by an RWI policy.
Contingent risk insurance
Contingent risk insurance offers coverage for known legal and regulatory risks. Plaintiffs, defendants and other stakeholders (i.e. buyers in an M&A transaction) can use contingent risk insurance to unlock value and remove risk from complex deals.
Reasons to use RWI
RWI is a deal facilitator
In traditional (non-insurance) deals, improving terms for buyer or seller comes at a cost to the other party.
By transferring risk from the seller to an insurer, RWI potentially improves terms for both parties and simplifies negotiation over representations, warranties and indemnification, subject to certain exceptions.
RWI advantages
Advantages of RWI
| Buyer advantages |
Seller advantages |
- Broader reps and warranties (within reason)
- Certain improved indemnification terms (e.g., longer coverage, broad loss definition and subject to negotiated exclusions, fewer limitations)
- Longer indemnity period (extends survival)
- May distinguish bid in auction or other competitive process
- Avoids post-closing adversarial proceedings/litigation with sellers (including management sellers)
- Provides security where there is concern over the ability to collect indemnification (including distressed seller context)
|
- Much lower post-closing indemnification exposure
- Generally not more than 0.5% of embedded value cap for non-fundamental reps
- No seller indemnity (public style) deals more common
- Avoid funds trapped in escrow at interest rate well below seller’s hurdle rate
- Provides option for reimbursement for indemnification obligation (seller-side coverage)
|
RWI basics
- Most policies (over 95%) are buy-side policies – provides buyer with indemnification protection while allowing sellers to exit with minimal escrows/indemnity obligations.
- Underwriting is based on review of due diligence process.
- Buyer policies cover seller fraud – subrogation waived against sellers except for fraud.
- Breaches of representations and warranties covered for up to six years post-closing.
- Public company-style/no-seller indemnity structures are achievable.
Tax insurance
Tax laws are everchanging and complex, and often fail to provide certainty when applied to a taxpayer’s particular facts. The financial consequences of that uncertainty can be severe if the tax reporting position of the taxpayer is successfully challenged by a tax authority.
Tax insurance solves this problem by transferring the risk of financial loss arising from a tax challenge to an insurance company. Additionally, it allows taxpayers more certainty to meet financial goals, structure transactions, and solve for other contingent exposures that arise during business and tax planning.
Tax insurance scenarios
- Generally used where there may be a question regarding the certainty of a given tax position
- Tax-free treatment of spinoffs, mergers, recapitalizations and other tax-free intended transactions
- Tax credit qualification (wind, solar, carbon capture, rehabilitation, employee retention credits, etc.)
- Real Estate Investment Trust (REIT) status and dealer property issues
- S corporation status and inadvertent terminations
- Availability of 338(h)(10) and 336(e) basis step-up elections
- Net operating losses (NOLs) and section 382 limitations
- Transfer pricing, cost segregation and valuation studies
- Partnership allocations and partnership level tax audits
- Debt/equity characterization
- Portfolio interest exemption
- Tax residency status
- Non-U.S. tax matters (e.g., VAT, permanent establishment, tax treaty qualification).
Contingent risk insurance
Contingent risk insurance eliminates the unpredictability of litigation by transferring known legal and regulatory risks to insurers.
