Insurance for Transaction Risks (M&A)

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.

AIG Warranty & Indemnity (W&I insurance)

W&I insurance covers financial losses from breaches of guarantees and - in some legal systems - tax-related exemption obligations. 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 they stipulate the extent to which the party that provides the guarantee must assume the statutory liability.

Special insurance solutions

  • General environmental liability insurance
  • Environmental liability insurance to cover known environmental burdens
  • or to limit the potential maximum loss
  • Contingent risk insurance to protect against possible damages that may arise from known but uncertain or non-quantifiable risks
  • 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).       

Solution: Warranty & Indemnity (W&I) insurance

  • The buyer can protect himself against imminent breaches of guarantees by taking out a W&I insurance policy.
  • While the seller assumes the contractual liability, he can also “reinsure” himself against a 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: Ensure the fullest comparability as possible of offers.

Our insurance offer

A buyer policy compensates the buyer for losses from breaches of guarantees and tax-related exemption obligations, which were arranged with the seller in the company acquisition agreement. It offers the buyer the option to assert claims directly against the insurance company without first asserting these claims against the seller.

A seller policy compensates the seller for losses from claims that are asserted by the buyer due to a breach of the guarantees and tax-related exemption obligations set out in the company acquisition agreement.

The W&I policy

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 company acquisition agreement, and that it reflects the designated minimum thresholds (de minimis) and other restrictive provisions.

The term of the policy will be the same as the validity period for the guarantees that are agreed in the company acquisition agreement (including extended periods for taxes), but it may be extended at the customer's request.