Insurance for transaction risks (Mergers &
Acquisitions)
AIG offers special insurance solutions for company mergers and acquisitions (M&A), which provide considerable strategic benefits and open up competitive advantages and negotiation leeway for both buyer and seller. Questions regarding pricing are clarified directly and effectively, and the risk profile is minimised.
Warranty & Indemnity (W&I) Insurance
W&I insurance covers financial losses from breaches of guarantees and - in some legal systems - from claims in respect of any tax indemnities. In addition, it also facilitates a large number of business transactions, in particular company takeovers.
Our Insurance Strategy
The inclusion of guarantees in sales and purchase agreements (SPA) plays an important role in M&A transactions - the exchange of information is improved, and the parties set out (by way of contract) the extent to which the party that provides the guarantee must assume the statutory liability.
Solution: Warranty & Indemnity (W&I) Insurance
- Buyers can protect themselves against imminent breaches of guarantees by taking out W&I Insurance.
- While the seller assumes the contractual liability, he can also “reinsure” himself against the potential breach of guarantees.
Solution: Concepts for auction processes
- The buyer demands a “normal” set of guarantees but only minimal liability (Warranty Cap), usually 1-2% of the transaction value, and uses the resulting competitive advantage in the auction process. In addition, he purchases insurance from AIG.
- The seller structures the auction in such a way that all bidders are offered adequate guarantees, combined with minimal own liability and the option to purchase additional insurance capacity. The result: Excellent comparability of offers.
Our Insurance Offer
A buy-side policy compensates the buyer for losses from breaches of guarantees and from claims in respect of any tax indemnities, which were arranged with the seller in the sale and purchase agreement. It offers the buyer the option to assert claims directly against the insurance company without first asserting these claims against the seller.
A sell-side policy compensates the seller for losses from claims that are asserted by the buyer due to a breach of the guarantees and from claims in respect of any tax indemnities set out in the sale and purchase agreement.
Each W&I policy is a customised policy that is designed in accordance with the requirements of the transaction. Our aim is to ensure that the insurance cover in the policy corresponds to the recourse claims and risk distribution that were agreed by the buyer and seller in the sale and purchase agreement, and that it reflects the designated de minimis and other restrictive provisions.
The coverage period of the policy will be the same as the validity period for the guarantees that are agreed in the sale and purchase agreement (including extended periods for taxes), but may be extended at the customer's request.
- General environmental liability insurance
- Environmental liability insurance to cover known environmental issues or to limit the potential loss Litigation Buyout program to limit the risk from pending or imminent (legal) disputes
- Tax Opinion Liability insurance / Fiscal Event solutions.
These insurance solutions can be used to remove obstacles to transactions or separate unwanted risks from the transaction (the buyer assumes the risk as per the contract but is “compensated” with a reduced purchase price and protects himself with an insurance solution; the seller insures the known risks in advance of the transaction in order to pre-empt possible attempts by interested bidders to reduce the purchase price).