Transactional Risk Insurance
Our experienced team of transactional risk brokers provides tailored insurance solutions to protect against unexpected exposures in M&A transactions.
Transactional risk insurance is crucial for safeguarding buyers and sellers in mergers and acquisitions. From representations and warranties (R&W) insurance to tax insurance and litigation insurance, our specialists will help you identify the necessary transactional insurance policies to streamline negotiations and increase deal value. Through our strong relationships with A-rated insurers, Alliant procures insurance solutions that conform to the unique structure of your deal and ensure broadest possible coverage.
Premier Transactional Risk Insurance Solutions
The Vital Role of Representations & Warranties (R&W) Insurance
R&W insurance supplements or replaces a traditional seller indemnity to provide recourse to the buyer for unknown breaches of the representations and warranties made by the seller in an acquisition agreement. R&W insurance facilitates a clean exit for the seller and increases the chances that a deal will go through.
Tax Insurance Designed to Mitigate Tax Liabilities
Tax insurance protects against identified tax issues that arise during due diligence. In lieu of an indemnity or escrow, for a one-time payment, the parties can obtain tax insurance to protect the buyer and allow the seller to have a clean exit.
Litigation Insurance that Protects Against Adverse Judgments
Litigation insurance protects against unexpected litigation exposures and reduces or eliminates reserves related to those exposures. Litigation insurance applies when representing clients as a defendant or plaintiff, insuring either from adverse judgments or settlements. If a buyer is hesitant to assume a litigation risk and the seller refuses to put down an escrow as coverage, litigation insurance transfers the risk to an A-rated carrier so the deal can close.
Tailored Transactional Insurance to Maximize Deal Value
From breaches in representations and warranties to uncertain tax liabilities, there are a myriad of risks that can threaten closing or cause unexpected financial losses after a deal is closed. Transactional risk insurance transfers risks to an insurer and facilitates smoother negotiations, allowing the buyer and seller to proceed with transactions with the confidence that they will be shielded from unanticipated exposures and liabilities.
Specialized Transaction Insurance Guidance from Our Dedicated Team
From onset of engagement, the Alliant Transactional Risk team provides consultative review of potential deal concerns and financial and legal aspects of the deal, helping to identify areas where insurance can mitigate risk. Our team of brokers then offer guidance on the most suitable coverage options based on the specifics of the sales transaction and negotiate the most comprehensive, cost-effective policies to safeguard your assets.
Expertise in Transactional Risk Insurance
Our team is composed of top firm-trained attorneys and deal makers who identify and resolve potential obstacles with highly tailored, best in class insurance solutions. Having worked on thousands of transactions, including several of the largest R&W insurance and tax insurance placements in history, Alliant’s Transactional Risk team is positioned to deliver transactional insurance solutions that provide financial protection against risks unique to your sales agreement and accelerate deal closing.
Transactional Risk Insurance FAQs
Transactional risk insurance is coverage designed to safeguard the seller’s liability or protect the buyer from any breaches that occur under the sale agreement in a transaction. Specifically, this insurance policy is used to protect or mitigate two types of risks that typically arise from M&A transactions and potentially stand-alone tax matters:
1. Unknown and Unforeseen Loss
These losses can be safeguarded with representations & warranties insurance (warranties & indemnities insurance), a policy designed to supplement or replace seller indemnity. Our experienced team of representations & warranties insurance brokers skillfully manages transactions by identifying potential issues and ensuring deals close on time with maximum value.
2. Identified and Known Risks
These are typically identified tax issues or could encapsulate other contingent risks. They can be wrapped around indemnities or be standalone policies, possibly attaching to the target. These risks are non-M&A drivers.
Transactional insurance is used to cover the following operational exposures:
- Representations & Warranties (R&W): In the event of undisclosed liabilities and exposures in a transaction, R&W insurance safeguards buyers from financial losses and reduces the seller’s liability exposure.
- Tax Liabilities: Tax insurance eliminates prolonged negotiation times and post-closing adversarial proceedings between parties.
- Contingent Liabilities: Transaction insurance protects against contingent liabilities, such as lawsuits pending judgment and tax disputes under review.
- Litigation Buyout: Litigation insurance is routinely procured to transfer legal exposure out of the M&A deal to an A-rated carrier.
- Asbestos Risk Transfer: If the seller has undisclosed asbestos liabilities, such as third-party claims for injuries related to occupational exposures, transactional insurance can provide coverage for claims.
- Liquidated Damages/Fund Closure: If a seller breaches the contract, a liquidated damages provision ensures the buyer receives a pre-specified sum to cover the damages.
- Loss Portfolio Transfer: Companies that have inherited large portfolios of claims may transfer these liabilities from one insurer to another to clean their balance sheet and mitigate future liabilities.
- Environmental Liability: Transaction liability insurance can help cover environmental liabilities, like pollution risks, acquired from a sales agreement.
- Patent Infringement/Intellectual Property: Coverage for patent infringement exposures and intellectual property breaches can save your business significant funds on legal fees and settlements.
- Key Person Coverage Placement: If the loss of an executive or other key individual of an acquired company occurs, this type of transaction insurance provides assurance to buyers that the business can continue operations without disruption.
Transactional risk insurance is necessary for both buyers and sellers involved in mergers and acquisitions. and provides several benefits to both parties:
Benefits for Buyers
- The buyer is able to mitigate any risks associated with potential breaches of representations and warranties by the seller in a sales agreement.
- The buyer receives financial protection against unexpected exposures that may arise after the deal has been closed.
- The buyer is able to agree to limiting the seller’s liability for breaches of representations and warranties, which helps buyers win deals and facilitates smoother negotiations with the seller.
- The buyer avoids adversarial proceedings with the seller after closing.
Benefits for Sellers
- Potential post-closing liability under the sale agreement is minimized for the seller.
- Negotiation times and attorney expenses are decreased, thus facilitating a clean exit for the seller and a quicker close for a deal.
- The seller can avoid tying up funds in escrow for years post-closing, which allows for a greater return to investors and/or more capital available for new investments.
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